Obtaining loans requires more documentation, time

When the federal government tightened the screws on the banking industry more than two years ago, the process of finalizing a consumer loan became more time consuming and rigid, but the regulations have not had a dramatic impact on the consumer’s opportunity to attain these loans.

Banking loan officers in the Tri-parish area said there isn’t much of a disparity between the numbers of loans granted before and after the regulations were imposed, but the tedious process is slightly more exclusive.

“It’s becoming more of a number society than a personal society,” said Willie Curole, president of South Lafourche Bank, as he tried to sum up the impact of the regulations.

Banks are under increased scrutiny by regulators and investors, which means documentation now dwarfs personal relationships. Where as a loan officer could vouch for a family friend just four years ago, the number-crunch now determines loan approval.

David Roger, vice president of South Louisiana Bank and a loan officer for 15 years, said the increased oversight has made the process more rigid.

“You have to fit into a box, that’s the best way to describe it,” Roger said. “It’s definitely, in some respects, taken the personal banker out of it. We still have a good relationship with the customers, but it’s not like I can call my underwriters and say, ‘Can you waive this for me?’ It’s got to fit the mold.”

The “mold” is a minimum credit score of 620 that must be complemented with W-2s and validated tax return statements.

Four years ago, someone with a credit score of 750 or higher could walk into South Louisiana Bank and be approved for a loan based on stated income, a benefit for commercial fishermen and others who are self employed. The entire loan process could be completed within three weeks. Now it’s 30 to 45 days, Roger said.

Curole agreed, and said the regulations have the most significant impact on people who work offshore, a prevalent occupation in the Tri-parish area. Still, he said, the regulations have not had an impact on his south Lafourche offices. “It really has not made that much of an impact in our little community, because most of the people would have qualified prior to this.”

The loan officers conceded that mandatory credit checks and loan-securing score requirements do eliminate some loan candidates, but a greater issue in the consumer-loan business, they said, is the heightened cost of living in the coastal area attributable to insurance premiums.

“Right now, insurance is going to ruin the financing of real estate in our area,” Curole said.

Curole said the post-hurricane premium increases and mandatory enrollment, for those with a home farther south, with the pricier Louisiana Citizens has forced he and his peers to “work backwards” to see what the lender can afford. It is driving down home values and frustrating buyers, sellers and bankers alike.

“That can actually stop someone from qualifying because you’re paying $200 or $300 [in home insurance payments] a month,” Roger said. “That’s played a huge part [in the loan process] since the hurricanes.”

Banks are required to escrow the insurance payments, so borrowers are writing checks for one-twelfth of the premiums each month. They no longer have the freedom to pay a lump sum at the end of the year.

Coupled with restrictions on a borrower’s maximum allowable debt-to-income ratio, the higher insurance premiums have contributed to some declined loans.

Depending on the Federal Housing Administration program a potential borrower is using to achieve a loan, the ratio is now capped at 45 or 41 percent. Prior to the regulations handed down in 2008 and 2009, a borrower with a good credit score could be approved with a more than 50 percent debt-to-income ratio, Roger said.

Although the impact hasn’t been dramatic, Roger was optimistic that some of the consumer-friendly home-buying programs would make a return in the near future.

“I just think the pendulum swung so quickly,” he said. “It’s an adjustment period for people. I think you’re starting to see now more of it leveling off. Some of the programs they did away with, they’re not totally coming back but they’re being modified a little bit. I think you’re going to gradually see things where it’s probably the process it should have been all along.”