Every week, we ask an Boston real estate professional for their thoughts on the top trends in Boston real estate.
This week, we talked with Keith Polaski, the COO/principal of radius financial group inc. Along with Sarah Valentini, Keith founded radius in 1999. In 2013, radius was ranked No. 16 among the Women Presidents’ Organization (WPO) 50 Fastest-Growing Women-Owned/led companies in North America, and No. 14 among BBJ’s Top 70 Pacesetters 2013. Ranked by Inc. Magazine’s “Inc. 500/5000” as one of the nation’s fastest growing companies for the past five years, radius was also voted one of the Boston Globe’s “Top 100 Places to Work” in 2013.
Boston Agent (BA): We hear different things from different agents on how tight lending standards remain for homebuyers; if an agent asked you about how lending standards were, what would you tell them?
Keith Polaski (KP): It’s in two places – first, there is credit quality. FICO scores have not been this important for quite some time, but they are drifting down somewhat; loan volumes are down, and lenders are trying to keep their own market shares up, so they’ve loosen their credit standards as a result.
Second, there is the impact of the Consumer Financial Protection Bureau’s (CFPB) QM (qualified mortgage) ability-to-repay regulations, which are required under Dodd-Frank. Now, for the time being, there is some relief on the debt to income restrictions; if a mortgage is eligible to be delivered to the government-sponsored enterprise (GSE), the current rules have a temporary relief on the debt-to-income restriction of 43 percent, but those will go away in about six years. On the jumbo side, because those loans are not eligible to go to the GSEs or the FHA, that debt-to-income restriction remains; so, we have seen some challenges in getting self-employed entrepreneurs approved in the jumbo space because of those restrictions.
Overall, though, if you have a job and you’ve paid your bills, you can probably get a loan. One of the problems that happened two or three years ago, as we were at the height of the foreclosure market, is everybody in the real estate community was unaware of what the impact of short sales would be. So although a lender was willing to forgive a portion of the debt that had previously been incurred, nobody understood that for the next five, six, seven years, the short sale would be a prohibiting event for future access to mortgage credit. So we do see a hangover affect on people who underwent short sales or modifications. From a lender’s perspective, if you’ve already demonstrated that you did not want to live up to your obligations, why would we want to get into that relationship with the consumer again?
But again, it merits repeating – if you’ve got a job, you’ve paid your bills and you made it through the recession, then there are lending opportunities for you.
BA: What are the most common mistakes you see from homebuyers, when it comes to preparing documentation for a loan?
KP: One of the biggest things – and it’s always wildly surprising – is the failure to file tax returns. They present returns to us that they’re either getting ready to file or that they have yet to file, and they say to us, “I haven’t yet filed for 2012″…yet we’re in 2014. It is amazing, the amount of times that we have the failure to file, or they’re sitting on draft tax returns and are working with an extension.
The other is, many consumers still do not understand the asset requirements for government-guaranteed loans. For such loans, we need to document and source every penny in the transaction. Consumers do not understand that when we have bank statements that show, for instance, a regular stream of $1,800 deposits twice a month, but then suddenly you see a $2,800 deposit, we’re going to need an explanation for that, and it’ll have to come from an acceptable source, not that you kept a shoebox filled with birthday money under your bed.
A job is a job – your pay stub is your pay stub, so there’s nothing the consumer misunderstands on that front; on the asset side, though, we sometimes struggle with sourcing the assets. The good news is that Fannie just changed that rule a touch. It used to be that any deposit that was 25 percent of your monthly income or greater had to have a full explanation, but they’ve now moved that to 50 percent, so there’s some relief there.
BA: Finally, do you think we’re on a consistent pace with home lending, or should we expect some changes in the next year?
KP: One of the big things – and I don’t think many agents are aware of it – is that there are still another 15 CFPB mortgage lending regulations to be promulgated, and they have not yet been finalized. One of them that has been finalized, but not implemented yet, is the TILA-RESPA integration. There are two laws out there – the Real Estate Settlement Procedures Act (RESPA), and the Truth in Lending Act (TILA) – and for many years, they were separate. Dodd-Frank, though, required those two to come together, and that will change things. Nowadays, many loans are approved the day of closing. As of August 1, 2015, there will be a three-day waiting period for the HUD-1 to be received and reviewed by the consumer. Same-day approvals and closings will cease as of next year when TILA-RESPA will be integrated.
The other big one, which is still not yet finalized, is the QRM, the Qualified Residential Mortgage, which is the risk retention piece of the new regulations. The whole idea is, the reason that loan originators made bad loans during the boom was because they had no skin in the game. Depending on the nature of those regulations, that could impact the breadth of credit; we’re getting indications from the CFPB, though, that QRM would be aligned with QM, and that would be good.
The other still unknown is GSE reform. This uncertainty does not help organizations like my own. We need clarity to be able to run and grow our business, and if you think of it now, somewhere around 95 percent of the market is being delivered to either Fannie, Freddie or Ginnie – and when you consider that those guys are supposed to be reformed and go away, that could have a dramatic impact on the marketplace, so until that’s resolved, it’s hard to know what to think; we just work with the rules that we have, but there is uncertainty, and that uncertainty will impact banks and push its way down to credit for the consumer, which of course will impact real estate and home prices.