Posted on 08/25/2015 9:09:44 AM PDT by Kaslin
Last month I bought a house in Potomac, Md., a trade-up on my current home, and was shocked to learn in the ensuing weeks that I couldn't get a mortgage loan. First, I went to PNC bank. Then Wells Fargo. Then another. Denied. Denied. Denied.
No, I don't feel entitled to a loan, and the banks have every right not to lend me money. But my tale of woe tells a broader tale of what is going on in the lending industry these days.
All the bankers told me the same thing: "Steve, if you'd walked in our bank eight years ago with this mortgage application, we would have rubber-stamped it in five minutes, and you would have walked out with a bag of money."
Those were the go-go days of the real estate frenzy when people who worked at McDonald's could walk into a Countrywide and get a $600,000 mortgage. Back then, underwriting standards were tossed out the window.
Now, thanks, in part, to new federal regulations, like Dodd-Frank with its rules against predatory lending, the pendulum has swung to the other extreme, and underwriting standards (for those without federal insurance) are absurdly tight. Here we are with the lowest interest rates in 50 years but many businesses and aspiring homeowners can't qualify. Water, water everywhere and not a drop to drink.
My situation was doubly frustrating because I'm making a 25 percent down payment on the house. Researchers have examined huge samples of the portfolio of defaulted loans during the 2007-2009 housing crisis. Virtually all the defaulted loans had low down payments, with many having less than 5 percent down, thanks to government "affordable housing" mandates.
Almost no loans with 25 percent down payment went into default because of simple economics: If you've paid for 25 percent of the house, and you suddenly can't make your mortgage payment, you sell the house or refinance the loan. You don't walk away from your equity stake. Duh.
The main reason I was denied a loan was because of a below-average credit score. This was infuriating on several levels. First, I have had two previous mortgages, and in 25 years I've never missed a payment. How can I be a high-risk borrower? The answer is that, twice in 30 years, I was 30 days late paying my credit card bill -- and paid the hefty late fee -- and, even more ridiculous, I, Steve Moore, have $300 of unpaid parking tickets.
The horror. How does that data point provide any useful information to a bank of whether I'm going to pay my mortgage?
This prompts another obvious question: Why in the world does any financial institution put any credence in credit rating agencies today? They were the most derelict institutions of all during the housing meltdown. These were the buffoons who were giving AAA credit ratings to mortgage-backed securities only weeks before the whole house of cards collapsed. They were the ones who ignored every warning of the subprime lending overload. They were the ones who gave Enron, Countrywide, Bear Stearns and others a clean bill of health right before these institutions famously crashed. But banks still listen to their advice on which homeowners are likely to pay off their loans?
But here is why I really want to pull my hair out. While I'm making a 25 percent down payment, the government insurance underwriters -- the Federal Housing Administration, Fannie Mae and Freddie Mac -- are backing with taxpayer dollars hundreds of thousands of loans made with as little as 3 percent down. These are the loans that will likely default. And taxpayers are on the hook for hundreds of billions of dollars.
Uncle Sam is repeating every mistake made just eight years ago. A record number of new mortgages are backed by the feds. Almost two-thirds have direct federal backing, and about 90 percent have some form of federal insurance. This is the definition of insanity.
Edward Pinto, a housing expert at the American Enterprise Institute, notes in a new study that, through Fannie, Freddie and FHA, government is relying on "looser and looser mortgage lending standards in a misguided effort to promote broader homeownership and accomplish wealth accumulation, particularly for low-income households." He shows that, in 2013, "low-income households (those in the 20th to 40th percentile of income distribution) had a median net worth of only $22,400 in 2013."
These are the people the government is forcing banks to make loans to.
So, while my tax dollars are backing thousands and thousands of loans likely to fail, my loan with close-to-zero probability of default can't get financed -- because I'm upper middle class. This is considered fairness. Only in America.
The strength of America has always been its middle class. If you are trying to destroy America, you destroy its middle class.
“The strength of America has always been its middle class. If you are trying to destroy America, you destroy its middle class.”
And Obama/Boner/McConnell/Jarrett are working together to finish it off.
Tell them you’re “gay” and the world is your oyster.
Seriously. Any banker would go to prison for a “hate crime” if they told an unabashed faggot “no.”
I don't believe in the "class" mentality. That will lead you where you don't want to go.
Second, he's saying mortgage madness returns, and uses that to criticize lenders for not granting him the loan. The fact is that he has a low credit score. For whatever reason. I used to be a realtor and, back then, if a potential borrower tried to borrow several loans, or tried to borrow the same loan several times, that was a red flag to a lender. And this guy says he tried to get the loan from several sources.
There's more to this than meets the eye.
Well, if the banks won’t lend to you then save up and buy a house for cash just like your great-grandparents did.
In case you don't know Potomac MD is the Hollywood of the DC metro area.
Haven’t bought many houses, but isn’t getting approval for a loan something that comes before you “buy” one? I know that I had to be approved before a sale went to escrow so otherwise aren’t you just shopping?
I have a suggestion for you:
Sell your old home. Take the 25% down payment you were going to put on the new home and invest it in a diversified portfolio of assets. Rent a home in the same neighborhood where you were looking to buy. Take the difference in the monthly carrying costs for owning that new home and the monthly rent you end up paying, and add it to the aforementioned diversified portfolio of assets every month.
In ten years you'll be glad you did this. Putting 25% down on an illiquid asset in a communist state that requires a large mortgage and unforeseen additional carrying costs doesn't make sense under any objective analysis.
The “mortgage madness” was giving anybody a loan, and even falsifying documents to make sure they could ge it (not that anybody went to jail for it). And then we bailed out the banks when it caught up to them.
I suspect the appraisal is part of the problem. He claims that he is going to make a down payment of 25%, but he doesn’t say if that is 25% of the purchase price or 25% of the bank’s appraised value. If it’s the first scenario and the appraisal came back much lower than the purchase price, then that explains the problem.
If you don’t pay your bills on time or feel free to not paying fines then why will you pay the mortgage company?!
“I, Steve Moore, have $300 of unpaid parking tickets.”
This is lame on Steve’s part. There is no way even a $30 parking ticket would go uncontested or unpaid on my part. I wage a vicious campaign when I feel that I have been wronged - often spending more time and money that would seem warranted - but I prevail.
And when I have been in the wrong in certain cases like parking in a handicapped space at 4:30am to fetch and then load my luggage into my rental car at an airport hotel during a rainstorm, I seek to settle the matter immediately and chalk it up to tuition for the school of life. However, I did get that $250 handicapped parking ticket reduced to $100 by simply contesting it by mail.
“The main reason I was denied a loan was because of a below-average credit score. This was infuriating on several levels. First, I have had two previous mortgages, and in 25 years I’ve never missed a payment. How can I be a high-risk borrower? The answer is that, twice in 30 years, I was 30 days late paying my credit card bill — and paid the hefty late fee — and, even more ridiculous, I, Steve Moore, have $300 of unpaid parking tickets.”
Well Steve I doubt that is the real problem. I was a Fannie Mae underwriter for years and a Fannie Mae forensic underwriter at Fannie Mae.
Although the $300 in unpaid parking tickets is showing up as a collection account that and a couple of lates on a credit card (unless in the last 12 months) is probably not keeping your score down that much. If you have paid late in the past 12 months and the parking tickets are a new collection it is keeping your score down.
I’m going to guess that its more likely you have too many credit cards with high balances. And by high balances I mean that your balance exceeds 50% of the maximum allowed on your card. That seems unfair but that’s what the credit scoring model looks at. You may well make enough money to pay the payments each month with no problem but the risk factor on multiple credit cards with “high” balances is a major player in the credit scoring. The trick is to pay the balances just below 50% and then get a re-score.
Another thing that will lower your scores is paying off and closing out credit accounts. Pay them off but don’t close them out just before applying for a loan.
And last but not least don’t let a million people pull your credit as you shop for a mortgage loan. Inquiries will lower your credit scores as well. Take your credit report with you and tell the loan officer to pre-approve you on that and then if you go with them they can pull your credit report.
“Haven’t bought many houses, but isn’t getting approval for a loan something that comes before you “buy” one? I know that I had to be approved before a sale went to escrow so otherwise aren’t you just shopping?”
Depends on the market. Most realtors require a “pre-qual” letter before accepting an offer. This means that the institution does not do a full check but takes your data at good faith.
I have heard stories of having to have a pre-approval but have not seen that.
Of course you have to get your loan approved before the sale closes.
Rule one, live way below your means.
Two late payments on credit cards years ago and some parking tickets do not kill a credit score. I've never had an issue getting a mortgage and I'm quite certain that I've forgotten to pay a credit card on at least a few occasions over the past couple of decades.
Good analysis.
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