Respa Rule Has Lenders Balking on Preapproval
The new mortgage disclosure rule is upending the first step in the process of lending to homebuyers. Before shopping for a property, a prospective buyer typically gets a preapproval letter from a lender indicating how big a loan the person qualifies for. Real estate agents often ask for these letters so they can make sure the customer can afford the property before showing it.
Before writing the letters, lenders like to see proof of income, such as a pay stub or tax return. But under the Real Estate Settlement Procedures Act rule that took effect Jan. 1, lenders may not require such documents before giving the borrower a good-faith estimate of closing costs.
Since lenders are now being held to those estimates, they want to hold off on issuing them as long as possible. So some lenders are reconsidering or backing away from preapprovals. Without them lenders could end up wasting time on loan applications that fall out.
"If you don't have preapproval letters, then Realtors are going to have to show people houses whether they can afford them or not," said David Dickinson, president of Bankers Compliance Consulting Inc. in Central City, Neb.
Vicki Bott, the deputy assistant secretary for single family housing at the Department of Housing and Urban Development, said in an interview Tuesday that lenders are not barred from accepting documents, only from requiring them prior to issuing a GFE. "If a consumer wants to receive a preapproval they can choose to have their information verified," she said, and HUD will clarify this in future updates to its "frequently asked questions" about the Respa rule. (How inconvenient is that?)
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