Home Building Articles
Red tape is strangling closings on homes
August 06, 2009
Mortgage firms' increased scrutiny is killing deals, delaying the sales process
The days of being able to sign a contract on a house and then pick up the keys in
a matter of weeks — or even days — are fading.
From start to finish, the time it takes to close a home has gone from less than
30 days to upward of 45, according to real estate brokers, who blame the delays
on more rigid mortgage standards and new rules governing appraisals.
"The whole process is being more scrutinized by the mortgage companies. Attorneys
are reviewing closing documents; surveys are being looked at in more detail; everything
along the process is being more carefully watched. It's not this feverish pace we
experienced a year ago," said Julie Greenwood of Greenwood King Properties.
On May 11, real estate agent Karen Carlton wrote a contract on a condominium in
The Woodlands for her client — a single woman with good credit and a 20 percent
Almost two months later, the sale still hasn't closed.
Carlton said it's been held back because of extra scrutiny from the lender, as the
property is a condo, and some information on the appraisal had to be corrected.
A domino effect
"We should have been there the 20th of June if everything would have moved smoothly,"
she said. "But it has not."
For some, the delays are causing a troubling domino effect. Carlton's condo buyer
needs to move out of the home she's in now because it's already sold. And the couple
she sold it to needs to move soon, too, because they're in the same predicament,
New regulations are causing some transactions to be called off altogether.
A buyer under contract on a house near the medical center priced at $565,000 walked
away from the deal when an appraiser valued the property for almost $100,000 less
than what the buyer agreed to pay.
"The deal fell out two days before closing," said Realtor Ed Wolff who was representing
The delays primarily are the result of changes in the appraisal industry that went
into effect May 1, said Vicki Fullerton, who chairs the board of the Houston Association
of Realtors. A lawsuit filed by New York's attorney general over inflated home valuations
resulted in a settlement that took the ordering of appraisals out of the hands of
real estate brokers, loan officers and mortgage brokers.
The change falls under the new Home Valuation Code of Conduct, the result of an
agreement among Freddie Mac, Fannie Mae, the Federal Housing Finance Agency and
the New York state attorney general to enhance the independence and accuracy of
the appraisal process. It's having widespread impact because it applies to lenders
that sell single-family mortgage loans to the government-sponsored entities.
Some properties are being undervalued because appraisal management companies who
now handle much of the appraisal business are in some cases hiring inexperienced
appraisers who aren't familiar with the neighborhoods where homes are being valued,
"It's causing great delays and added expenses for the consumers," she said.
Another new set of guidelines that go into effect July 30 have the potential to
delay closings even more.
The Federal Reserve has revised disclosure requirements for mortgages that say a
lender must wait seven business days after providing estimates of loan costs before
closing a loan. Lenders must also wait an additional three business days after providing
new disclosures with a revised annual percentage rate if one is needed.
"A lot of these things get put in place to protect the consumer," said David Jackson,
branch manager at Flagstone Lending Group in Houston. "It just makes everyone realize
in the real estate industry it may take a little bit longer to make a transaction
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