Cash lake loan quick salt

The computer liked us

`We take your life story, and you take Rolaids for the next 30 days until we tell you you're approved," says Douglas Norman of Old Kent Mortgage Co. in Grand Rapids, Mich. That pretty well describes how Americans traditionally have applied for mortgage loans. Now, if Norman and others in the industry are to be believed, you breeze into a lender's office, supply a bare-bones accounting of your finances and waltz out literally in minutes with a mortgage--because your application was processed efficiently by a computer. These "instant approval" programs are being marketed with names like "HurryHome Mortgage," "CitiQuik" and "SNAP."

Can automation really spell relief? Not entirely. The loans are unsuited to marginal borrowers. Not all kinds of loans have been computerized yet, and some lenders cannot handle large loans. And they are seldom instant.

A few banks have been feeding applications into computers for a year or two. But the real dawn of the automation age came earlier this year, when the Federal Home Loan Mortgage Corp. in February and the Federal National Mortgage Association in April introduced computer programs for licensing to lenders. About 100 lenders are using the two systems so far. At least twice as many are expected by 1996, drawn by the speed, lower cost and objective, consistent loan decisions. A handful of lenders, including Countrywide Funding, the nation's biggest, have developed their own software. Some systems are based on sets of rules; others, on a mathematical model. Either way, a decision can be rendered in minutes, though verifying information on employment and assets may need a day or two.

Approval does not put a loan in your pocket. A property appraisal--and often a title search--is required, which can take weeks. Freddie Mac's loan approval system can streamline appraisals by tapping into real-estate and tax data. In routine cases, like a house in a cookie-cutter subdivision, that cuts the wait to three days, since the appraiser can simply drive by and eye the property. Fannie Mae is cutting appraisal times on refinanced loans to 48 hours and plans to extend the option to all loans in October.

Such "virtual appraisals" can save a few bucks. At Mortgage America in Birmingham, Ala., Freddie Mac's system costs customers $15 less than the old way. PHH US Mortgage customers get a $50 rebate if there's no credit decision within 24 hours and get one eighth of a point knocked off the rate if PHH can't meet their settlement date. But most people ask for 30 days, says spokeswoman Kristine Blomkvest.

An unsung advantage of the loans is their potential to help you haggle if you get credit approval before you start shopping. A firm commitment, even one still conditioned on an appraisal and title search, is a better bargaining chip than a "prequalification letter" based only on a cursory review of your financial health and not binding on the lender.

Fast close. Old Kent customers Lisa McIsaac, 29, and fiance Scott Jewell, 31, got a break from their sellers, eager to close on their new home, by moving quickly. McIsaac and Jewell negotiated a contract on a Saturday, applied for a loan Monday, were approved while in the office and got their appraisal on Thursday. They closed July 31, 19 days after they first saw the three-bedroom rancher in Grand Rapids, Mich. Their prize for being speedy: the sellers' riding mower, to manicure their extra-large yard.

Only about half the borrowers who use computerized loan programs get an automatic OK. Clean credit counts heavily. A few 30-day late payments will get by, but most computers will gag on several payments 60 days past due. It also helps if your down payment is over 5 percent, debts aren't out of whack with income and you've got a couple of months worth of house payments in reserve.

For now, computers process mostly plain-vanilla loans. Some systems can't handle jumbos above the current ceiling of $203,150 on loans purchased by Fannie Mae and Freddie Mac; others stumble on VA, FHA or special programs such as some low-income or low-downpayment loans. But capabilities are expanding. Freddie Mac is expected to add jumbo loans soon, and Fannie Mae says that VA and FHA loans will come later this year.

Some loan applications are bounced back with stipulations. An OK might depend on submission of a tax return, for instance. In complicated cases, the application is referred to a human underwriter. At Crossland Mortgage in Salt Lake City, about two thirds of referred loans are approved; at Countrywide, it is 90 percent. A "caution flag" in Freddie Mac's program warns the lender to review an application closely. Flagging cuts approval chances to 50-50 or worse, but only about 5 percent of loans are flagged, says Jane Dwight at Freddie Mac.

Computers are colorblind and consistent--a boon to an industry under fire for its poor record on minority lending. A computer can also be ordered to bend the traditional rules. Lenders used to insist that debt payments total no more than 36 to 38 percent of income. Some computerized systems emphasize credit history instead, especially timely payments. "We can now go as high as 44 percent," says Cathleen Raffaeli at Citicorp. And computers are not irrationally narrow-minded. A Countrywide underwriter once denied a loan because she felt the borrowers overused ATM machines--an indication, she felt, of poor budgeting skills. ATM use is a nonissue for Countrywide's computer.

On routine approvals, paperwork is cut back from a thick file to a couple of pay stubs, bank statements and W-2s. Such streamlining eventually should save lenders $300 to $1,000 per loan in reduced processing costs, and some of the benefits should find their way into consumers' pockets.

Until that happens, borrowers at least can look for discounts for quick closings. Lenders routinely shave as much as one-half point--0.5 percent of the loan amount--for closing in 15 days instead of 60 and one-fourth point for meeting a 30-day deadline.

Some lenders make applicants pay more for computer privileges. AmerUs Mortgage tacks on $50 to its $350 application fee for its HurryHome Mortgage. For some folks, it's worth it. "Waiting to hear that you've been approved are some of the longest days of your life," says Citicorp's Raffaeli. "Now, they'll be some of the longest minutes."

CASE HISTORY NO. 1

Applicant profile: Husband, 46, a professional, and wife, 41, a homemaker; $78,000 annual income; seeking loan of $155,700.

Positives: Excellent credit and cash reserves; housing expenses would rise a modest 9 percent.

Negatives: At 38.1 percent of gross income, debts top lender's 38 percent cutoff; sale price of home far lower than that of comparables, calling appraisal into question.

Action: Referred to underwriter; loan approved.

CASE HISTORY NO. 2

Applicant profile: Just-transferred military officer, 37, and wife, 32, a teacher; $63,700 annual income; seeking loan of $148,000.

Positives: Adequate cash reserves.

Negatives: No teaching job; housing expenses would double; 23 credit cards with cumulative six-figure credit limit; late payments in 1992 and '94; collection-company involvement in 1990 and '93.

Action: Referred to underwriter. Requested explanation of credit

problems and teaching prospects and documentation of additional assets; loan approved.