Backlogs in approving mortgages are causing significant delays in home purchase closings, according to the latest Campbell/Inside Mortgage Finance HousingPulse monthly tracking survey of real estate market conditions.
While the normal mortgage approval timeline is around 30 days, heavy lender workloads due to a surge in refinancing applications and appraisal complications have stretched timelines to 45-60 days. In some areas, up to half of home purchase closings have been affected, according to real estate agents responding to the national HousingPulse survey in September.
Mortgage problems have been especially acute for distressed property closings, including both foreclosed and short sale transactions. For foreclosed properties, damage to the property often prevents uncontested or simple appraisals. For short sale properties, mortgage origination preapprovals sometimes lapse before all parties-mortgage servicer, mortgage investor(s), and homeowner-have agreed to the transaction.
Further complicating the situation is a new California law prohibiting forced deficiency notes on short sales, which has made second lien holders slow to negotiate these transactions.
Meanwhile, the total proportion of distressed property in the housing market, as tracked by the HousingPulse Distressed Property Index (DPI), fell to 44.4 percent in September from 45.9 percent in August. The gap between the supply of distressed properties and the absorption by first-time homebuyers narrowed to 8.8 percentage points in September, down from 11.0 percentage points in August.
But major delays in closings was the big housing news in September. “Per other agents in office, approximately 45-50 percent of transactions delayed due to mortgage application timelines. And the issue seems to be getting worse,” commented a real estate agent in Mississippi who responded to the latest HousingPulse survey. “Approximately 70 percent of all distressed property closings (in our area) have been delayed because of loan conditions,” complained an agent in California.
Many agents reported long mortgage approval timelines in the latest survey. “Most mortgage applications are taking 45-90 days for approval. However, there really is no set time as the banks are continually asking for more info. Because of the (large) number of refinances, our mortgage officer in our office is saying it will take longer from now on,” reported an agent in Connecticut.
“Closing definitely takes longer due to loans now. Approximately 45 days instead of 30 days,” confirmed an agent in Colorado. “All closing timeframes have been lengthened due to the changes in appraisal rules,” added an agent in Michigan.
“With the new California law 458, seconds are not willing to settle. Mortgage application timelines run out for the buyers waiting to receive acceptance, counter or declination. Problems are getting worse,” predicted an agent in California.