Mortgage Process ‘Almost Designed to Scare People Away’: CEO










Lennar Corp. has been successful in catering to first-time homebuyers in places like Texas where it can still build affordable homes and jobs are plentiful.

About 20% of the homes Lennar builds in Dallas, Austin and San Antonio are priced below $200,000.

“We have not neglected the first-time buyer market,” Lennar’s chief executive Stuart Miller said in discussing the company’s latest quarterly results.

But he noted the first-time buyer market has not really come back yet. And he appears to assign much of blame to the mortgage process.

The barriers to getting a mortgage are “high,” he said during a Sept. 17 webcast. The process of getting a mortgage has become “very invasive.” It is “almost designed to scare people away,” he said.

Lennar Corp. is in the mortgage business and it finances over 70% of its customers that need a mortgage. Lennar Financial Services originated $1.7 billion in single-family loans in the third quarter (ending Aug. 31), up from $1.4 billion in the prior quarter.

However, the homebuilder sells substantially all of its loans into the secondary market and has little control over underwriting standards or overlays set by the banks and other aggregators.

“There has been some loosening in credit underwriting at the margin, but it hasn’t been as significant as some have reported,” Miller told investors and analysts.

Pauline McGrath, president of Republic State Mortgage in Houston, contends put-backs by Fannie Mae and Freddie Mac have created fear and uncertainty among lenders. And it is has resulted in a “dramatic increase in over-documentation,” she said.

“Lenders are constantly looking over their shoulders because loans are being re-underwritten two and three times. Once by the aggregator and other times by the GSEs and they are constantly being looked at again and again,” she said at a housing summit in Washington sponsored by the Bipartisan Policy Center. “Perfectly performing loans are being put back for minor document errors,” she added.

But McGrath noted there are other factors at work, which is constraining lending and the housing market.

FICO’s chief analytics officer Andrew Jennings noted that affordability is an important factor for first-time buyers that are often saddled with student loans.

Jennings noted that people in the 600 to 700 credit score range generally have $25,000 in non-mortgage debt, which makes it harder to qualify for a mortgage.

In 2005, the average first-time buyer could afford a $250,000 home. Now it is around $180,000. “Clearly, people are qualifying for less money than in 2005,” he said at the housing summit.

Meanwhile, Houston, Dallas and other Texas cities are benefiting from “job creation and thriving new construction and affordable housing,” said Jonathan Smoke, chief economist at But even in Texas it is tough build a home for under $175,000 and “much, much tougher to get under $150,000 because of land costs,” one Lennar executive said.

Overall new home sales are “still way off historical levels,” Smoke said, due to “weak demand” especially when it comes to entry level buyers.

Lennar is taking the long view, however, and Miller expects borrowers and lenders will adjust to this environment.

The CEO noted the cost of renting is going up every year and it is driving more people into buying homes. Potential buyers will start saving more for a down payment or get help from their family. They will get their credit credentials “buffed and polished” and ready for underwriting,” Miller said. “They will take a deep a breath and the prepare themselves to go through the mortgage process.”

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