Potential homebuyers and homeowners who plan to refinance often have their hopes crushed early in the game when they find that their income, debt or savings simply will not allow them to qualify for a mortgage.
Others are pre-approved, complete their mortgage applications, find a house, provide all of the paperwork and lock in their loan interest rate only to learn a new real estate term: pull-through rate.
The loan pull-through rate is the ratio of mortgage applications that are locked in yet still fail to close.
The pull-through rate is an important statistic to the mortgage industry as every loan costs the originator and the lender time and money. The lower the pull-through rate, the more they must charge other borrowers for loans that do close. For customers, a failed loan means lost fees and deposits, as well as disappointment.
The Mortgage Bankers Association reports that during the first quarter of 2010, the last period for which numbers are available, the national pull-through rate dropped to 66 percent of locked-in applications, from 73 percent the quarter before.
Scott Stucky, chief operating office of DocuTech, assists lenders with documentation and compliance issues. He estimates the pull-through rate in some areas of the country could now be as low as 55 percent, but that the Washington area is faring much better.
Mortgages fall through for a lot of reasons. Stucky said low pull-through rates really are the flip side of tightened lending regulations. “The biggest challenges are collateral valuation and credit quality,” he said.
With refinancing making up around 65 percent of mortgage applications, even established homeowners are getting surprises. Stucky said many people who bought or refinanced a few years ago used alternative mortgage products, such as no-documentation loans or option-payment mortgages.
Now they want to refinance or their old rate has shot up to where they really must refinance, but they encounter problems providing documentation that was not required last time but is essential now.
In addition, he said, lower house prices have created loan-to-value problems “and if the homeowner has suffered even short-term unemployment in recent months, proving a sufficient period of stable employment can be a problem.”
Foreclosures, short sales, and new appraisal regulations have increased the difficulty of establishing house values in a changing market, contributing to the pull-through statistics.
Chris Sipe, branch manager of Embrace Home Loans in Fredrick, Md., said he finds most new loan guidelines are reasonable but new appraisal rules can complicate things.
“With loan-to-value requirements so tight,” he said, “I like to be comfortable with a house value before accepting an application. I used to call on one of the appraisers I know for some preliminary information, but that kind of contact is no longer permitted. Now I rely on online comps, which can be sketchy.”
Borrowers can still call an appraiser, however. Sipe suggests that an informal chat about house values would be smart before getting into a mortgage application.
The presence of junior liens also can cause problems because, where equity is tight, there may not be enough money in the new loan to pay off a home equity loan or second mortgage. Sipe has seen two refinances fall through when junior lien holders refused to subordinate their loans, even though their borrower’s new lower payment would lower the lender’s own risk.
The increased time needed to process an application, particularly if the property is a short sale or foreclosure, also can kill a loan. Sipe said he advises borrowers to lock their rate in for 45 days rather than the usual 30.
“Don’t leave anything to chance and don’t cut things too close,” he said. “Sure you can extend locks, but it is more costly to extend than to lock for 45 days in the first place.”
