Drowning In Rules! Save Yourself…Go On Without Me!

September 24th, 2010

I may make light of the Feds and the banking industry and their arcane rules a bit too much, but now they really deserve it. Now they have gone too far. I have witnessed bureaucratic insanity on such an unreal scale, I am not sure you will believe me. Below is the story…

As we all know by now the federal government has taken over Fannie Mae and Freddie Mac into federal receivership. Whereas before the government was merely backstopping Fannie Mae and Freddie Mac, they now own them. Hence, the government and the bureaucrats are literally writing all of the mortgage rules. And the banking industry knows that they need to dot every ‘i’ and cross every ‘t’, or their loans will not be salable to Fannie Mae and Freddie Mac, i.e. government.

So the next time you run up against what seems like a ridiculous rule, or an underwriter who has taken a hard-line on an underwriting guideline, you should not point the finger at the individual, point the finger at Fannie Mae, Freddie Mac, the banking industry, and the federal government.

Here’s my unbelievable example that you may not find true. I submitted a loan to a large, well-known bank. After one week we got a notice saying that there was an error on the good faith estimate, that the lock-in on the client’s excellent interest rate was canceled, and that the loan application in its entirety was also canceled arbitrarily, and being sent back to us.

On the face of it, an error on the good faith estimate seems like something they should allow to be corrected. But it gets even more arcane. The “mistake” that was made on good faith estimate is that one box was not marked as it should have been, so the entire loan and lock-in were canceled. The box that was such a flagrant violation that was not checked, was the box stating that the mortgage client had to have escrows for property taxes and homeowners insurance.

Think about that for just 1 minute. A box was not checked off. A simple oversight was made. This simple oversight had no material effect on the underwriting of the file, or the creditworthiness of the client. It was a slight human error. It was an inputting error. It was a checkbox for goodness sake! This is as silly as when you go to the Department of Motor Vehicles and don’t know your home address from 14 years ago, and they deny the registration of your new vehicle as a result.

This oversight was obviously our fault, as the mortgage broker it is our responsibility to check all the right boxes. Since it was our fault, and since interest rates are now higher, and since we now have to restart the loan with a new lock-in at today’s rates, we paid the difference to get the client their first interest rate lock-in, at our loss. But the fact that missing a check box cost us money, cost the client time, and caused a lot of paperwork to be completely redone, is unnecessary, arcane, arbitrary, and downright scary.

If this is what getting a mortgage has come to, things are getting worse. When one initial, one check box, one decimal point is missing or off, and you do not get a chance to correct it, and the loan and interest rate lock-in are canceled, we are all in for a long ride until sanity returns. And when governments and large bureaucratic banks go this crazy, we won’t be coming back to sanity for quite some time. Sadly, I predict I’ll be reporting on more of this type of bureaucracy in the near future.


Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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