A few years ago, I was cleaning out my mother’s tool shed, which had few tools but heaps of boxes filled with decades of papers. My mother doesn’t like to throw out any important papers and it’s no comfort the IRS only requires a seven-year term of record storage. In going through all this stuff, I was taken on an interesting history trip, a time when commerce has fascinatingly simple.
I came across many receipts. One from the hardware store where every item was hand written on the receipt, no scanners or bar codes, and most things were paid for by check! The items that were rung up with credit cards were swiped with those roll over imprinting gadgets. Yet what struck me especially were some home loan documents.
I came across a skinny folder titled Home Mortgage. I thought to myself this folder was purged of extra stuff’ cause it only held two or three sheets of paper. A one-page contract agreement and a deed of trust. There probably was another sheet of paper as an application, but that was it. I asked my mother if there was more somewhere and she said, “no, it’s how they did it back then.” Sign here and sign there. Done! Your house is financed.
Refinancing a property or getting a home loan today is a very different experience indeed – an experience filled with documents and signatures and collecting statements that don’t have much bearing on whether or not you’ll be a deadbeat and default on your loan. Remembering my mother’s folder, I thought I’d use the recent refinancing of our home to contrast. I decided I would count the number of signatures and how many sheets of paper generated to complete the process.
Our initial loan docs had a loan application, a good faith estimate and a sea of disclosures. These added up to 43 signatures on 60 sheets of paper! Keep in mind we are both on the loan so it totaled 86 signatures. Wow! Then after a couple months of statement collecting, you get final loan docs for closing, and you do it all over again. At closing I counted one more: 44 signatures, but I think I was only losing my mind, not to mention my hand cramping up. This round had a bonus: initials, so I counted them too.
To sum up:
86 signatures on 60 sheets of paper.
88 signatures and 32 initials on 80 sheets of paper.
174 signatures, 32 initials, on 140 sheets of paper.
This is a far cry from my mother’s three sheets of paper with a couple signatures. Yet her house did not go into default. No law suits were generated. Those sheets of paper were just as effective to close a home loan as this current madness.
No wonder we are having the problems we are having today. People don’t know what they are signing! Who has time to read all this? The poor loan officer would be there for 10 hours at least if you actually review what you sign at closing.
The banks used this complex loan process, then lumped them with millions more complicated loans, packaged them together and sold them as derivatives. No wonder we’re in such a mess if that is how our world’s economy was gambled upon. I’m no expert on the financial crisis, but as a simple observer of one home refinance, I clearly see what a mess it is.
So does all this paperwork protect us from future disasters and melt downs? Not at all. The banks and financial institutions are destined to repeat the same damn thing. I actually read what I signed and most of it is silly nonsense with no real protections or improvements from their last mistakes. As one loan officer put it to me, “it’s just people covering their butts.”
Some contracts are better simple…before those lawyers got involved.