Today I was working with one of my loan officers on a file ... an extremely qualified borrower I might add that was getting quite frustrated with having to document his income and identify his deposits in his bank account. Here was my response back to the loan officer:
"I know it is tough to ask a buyer as qualified as Mr.XXXX for all this documentation. Unfortunately, it's the world we live in today. Investors don't care about common sense, and for some reason the risk factor seems to have been completely eliminated for the time being. The crack down by the Federal Reserve has forced investors into a CYA mentality (don't mean to be crude, but it seems to be the best way to describe it.)
All move up and relocation buyers are going through the shock of what is being asked of them, because "the last time" they didn't have all these hoops to jump through. And they didn't. And WE didn't have to ask them to jump in those days either. Our industry as a whole has been put in a sort of "time out" being punished for the stupidity of following our instructions a decade or so ago, when the government's call to action for our industry was "every American DESERVES a home" (started during the Clinton administration, actually). Thus came stated income and then stated income, stated asset loans along with 125% LTV loans, and let's not bring up those self-destructing option ARMS! Doing these high risk loans, resulted in high returns for those lenders and investors... but not for long. And even though WRSM did not participate or fund those types of loans, we are not exempt from the national punishment which is bestowed on not only the lender, but our buyers as well.
Is it ugly? ABSOLUTELY! And I hate it, too. But there's nothing we can do about it right now. And to wonder if it's going to get worse is a concern I hope we all have. But that's another discussion. For right now, our buyers just need to know: THIS IS NOT ABOUT THEM and to try and not take this personally. And to be honest, I have to wonder if this is part of the "big plan": make it difficult; make us all become so frustrated, that government run housing is welcomed as another change in our nation.
So, do I feel for what Mr. XXXX is going through? Most definitely. But it's not too far fetched to be concerned that a day may come in the not too distant future that wanna-be buyers won't even have the option to jump through all these hoops.
Now that I've completely depressed myself, I'm going to go and pull those never ending weeds that like to invade my flower gardens, except today I'm going to be thankful that I have a house and a yard of my own to worry about. And hope and pray my grandkids do, too."
I seldom, if ever, write any blogs having to do with a political edge to them. But right now, I'm frightened. We ALL need to be!
Views and opinions expressed on this site are not necessarily those of WR Starkey Mortgage.
Ruth Vogt, Branch Manager
Colorado LMB #LMB100023827
Ruth, just be glad you have a buyer to work with. Many are scared with the financial instability.
Your buyer should be thrilled to be able to enjoy the lowest mortgage interest rates ever!
Vickie, EXCELLENT POINT!
John, How easy it is to overlook the positive, isn't it?
Ruth ~ And don't forget the interest only loans...The industry is paying for absolutely no forethought by our politicians a few decades ago! Excellent post!
This is analogous of the hoops we now have to go through when boarding a plane, down to the indignity of being x-rayed. It is, unfortunately, a necessary evil.
Hi Ruth, It seems the pendulum swings one way and then out of control the other way...maybe it will land somewhere in the middle again. I hope our grandkids will be able to buy a house, it never occured to me that they wouldn't....
Ruth, we all need to reset our clients' expectations from the get go to avoid issues like this popping up.
Dawn, Yep, another reason that put us where we are today.
Jane, Let's just hope the extra scrutiny works!
Mary, Let's hope our grandkids can continue to take homeownership for granted!
Drew, It doesn't mean they understand, though, does it?
Hello Ruth ~
Great post as usual! Most 1st time buyers are edgy! Even with the lowest interest arte ever, and the best buyers market ever! I have lost many buyers because of financing!
Thank you very much for sharing,
Adam
Adam, and in this market, it's tough losing buyers for ANY reason. First time OR move up! Thanks for stopping by. ;)
Hey Ruth, it is important to be honest with your clients because in the end you can help them avoid unnecessary stress or situations that could be even worse. Sometimes with our clients in Feng Shui do not want to hear the truth, but that is what helps them move to the next level. Keep your head up :)
It's an understatement that Lenders/investors are being more cautious nowadays when approving a buyer. But can you blame them? They are lending millions of dollars, so they want to make sure that the borrower does NOT default on the mortgage loan!
I tell my buyers, I don't have the money to loan you, if they want a picture of your dog I'll take it for you. They will ask them for something equally as silly.
Ruth - Remember Lend America? They had some very turbulent years with FHA since the 1990s. HUD finally shut them down back in December, 2009 (seems just like yesterday!).
Anyway, in a very unusual move, HUD not only went after the officers of the company, they also went after the underwriters. As such, we can expect every mortgage underwriter across America to be extremely nit-picky with every loan application. Every loan application is being scrutinized to the nth degree.
Bottom line - the lenders have the money to lend. The buyers need the money to buy a home. Don't fret over the nit-picky demands. I don't mean to sound harsh or uncaring, but it's either give them what they want, or go find some place to rent, 'cause no underwriter wants to live in the Gray Bar hotel.
Great post. I run into this too and it seems like those who are moving from out of state and bought back when things were easy are having the hardest time.
So true--the hoops are everywhere and on almost every file!
Ruth. I just had a buyer go through this. She has a credit score of over 800. No debt. Huge assets. 6 figure income. And it was DIFFICULT to get a 75% mortgage on a 2nd home. She got it but they made her jump through hoops. She almost just gave up and paid cash.
Good post - & I'm finding that since first time buyers don't really know what to expect, they take the hoops in stride better than someone who has bought many times before & does tend to get upset that things are SO different now.
Hopefully the hoops inform buyers and limit flippant decisions... and don't just frustrate for no reason. Thank you for sharing this post.
I'm going to be on the other side of this. The banks aren't just dotting "i's" and crossing "t's" They are being ridiculous. I will site some examples:
1. I had a buyer with 50% down that got turned down on a loan because the bank didn't like the condo complex. It was fully occupied - fairly new construction and the number of units not owner occupied - less than 10%. They wanted FEMA flood plans for God's sake. For an 8th floor unit. I told them that if the 8th floor of that condo ever became flooded - the city in which it was located would be uninhabitable.
2. I had another client who had sterling credit - long time employee. The final straw came when the demanded a written explanation for every pay raise and bonus she had ever received over a 5- year period from her human resources department. I'm sorry, but HR departments do not have the time or resources to track all that down every time someone applies for a loan.
3. One of my buyers was a young couple. the wife was a teacher who had taken 1 semester off to finish her M.S. The bank insisted on a written letter explaining her employement "lapse." And a transcript proving that she was in school. God forbid anyone be between jobs and take the opportunity to tour Europe or something. Also, many - if not most of us - are not with the same employer for more than a couple of years. Its the overall stability that should matter. This is nonsense.
4. Another client - this time of another agent - was turned down because they were buying their retiriement home and didn't have a JOB. Well, if you are retiring the idea is that you are not working full time. They could pay for the home 4 times over, but would have preferred not to use all their capital. Great credit - excellent risk.
5. May I also add that self-employed people such as Realtors® - and small business owners can't get loans no matter how steady their income.
Allowing lenders to sit on cash this way is stifling the recovery. Lending needs to loosen - not like it was before - but to some extent or businesses will be unable to meet payrolls and the like. The TARP money was supposed to be to loosen frozen credit. All they did was put the money in a vault and use it for aquisitions. They have to start lending in a reasonable rational way.
Ruth,
Isn't it amazing that EVERY deal is a struggle now. It can be exhausting for the professionals working on the transaction and simultaneously an emotional roller coaster for the borrower and the seller. As many have said here today, people need to count their lucky stars to have rates such as this.
I agree with post #22, the lenders aren't being careful, they are being ridiculous. Common Sense has completely gone out the window for some UW's. Every transaction involving financing is pretty close to a 'bad dream'. It's almost like the lenders don't want to lend and are just looking for an excuse to reject a loan. But unless we can fill our pipeline with CASH only buyers or decide to 'switch careers' we and our clients will continue to be at their mercy, unfortunately.
Hi Ruth thanks for sharing this. I to have had similar situations happen to me recently. I have buyers who just can't understand why they must have this document or provide this. But in the end it is worth it - especially with these low interest rates!
t
Most people really still do not understand how much the lending guidelines have tightened in the last 3 years. Lenders are having to absorb losses left and right. It's easy for someone to say they are great borrowers, just approve them.
Of those complaining about the tightened guidelines, how many would take the same stance if they were actually lending their own money???? Would they lend justanyone their money without similar verifications, I doubt it.
I completely agree! When we have very financially well healed clients, its a bit frustrating watching them have to jump through the hoops. Luckily most of them are familiar with how financial institutions work and they just roll with it.
Ruth: Thanks for this. I appreciate it. We are being challenged like never before. Only the strong-minded will survive. I wish you well!
Rodney (#26)--- I think the first time home buyers are a lot more understanding than the second time home buyers just because the first really don't know or have not gone through the process before like our second timers. Well at least they thought!!!I get a lot of comments in today's lending crises that we did not have to give all this documentation on the first house we bought. Of course I have to go through my spill about the changes in lending the last three years. Sometimes, will a client goes overboard about the documentation then, yes Rodney I turn the tables and ask if they were lending $200K would they want some type of back ground check (income and assets). I only had to bring that point up a few times, which I hate too but it is so TRUE, plus these past homeowners that give me the most flack went on the no income no assets the first time around.
If any of you were walking down a street and a guy you didn't know came up to you and asked you for $500k, would you give it to them? Only if they could show beyond a doubt that you would get your money back. Until you put YOUR OWN MONEY on the line, it is hard to understand why banks act the way they do, especially after taking the huge losses on all those "common sense loans" that were done during the bubble.
The other thing consumers and Realtors don't understand is that banks make loans because they are salable. This means unless the loan is documented a certain way, NO MATTER HOW STUPID IT MAY SEEM, that loan is essentially worthless to the bank. The secondary market is so efficient and so large that investors do not have time to know the back story regarding every single deal. Therefore, it boils down to fitting the loans in a box.
The other issue is FRAUD detection. When you are lending out billions of dollars, you better bet there is a lot of fraud. The amount of money involved in real estate, plus the overall lack of any real barriers to entry for Realtors and LOs, combined with consumer desperation leads to a ton of mortgage fraud. U/W ask to document deposits, verify employment, and all these things because that is how fraud is uncovered.
Yeah, banks can be stupid sometimes, but always remember, you are borrowing hundreds of thousands of dollars, not asking for a monthly payment plan on a TV at best buy.
Thanks for sharing this insight. Most people have a hard time understanding..I always try to set realistic expectations when I take a loan application of issues that may come up and explain that the mortgage lending world is much different that 5 years ago.
Hi Ruth - as a lender in Chapel Hill, NC, I'm as flustered with the underwriting as any borrower or agent could be.
-Over documentation is necessary at application.
-Compliance with RESPA is constant.
-Quality Control is ongoing....especially once the loan has been approved, and is in the closing department.
So it's: over document at application.
Prepare borrowers for the unexpected and that it's not (necessarily) them, though it could be.
Keep the agents in the loop.
Expect the best....prepare for the unexpected.
Thanks for you post.
Carole, Sometimes you run into buyers that don't care how much you advise them... they just want to complain. But, this case was different. He wasn't angry, just frustrated with the extra documentation he had to provide this time. And he was right.
Amanda, As they should be!
Karen, I love it! and I'm going to "adopt" your saying and share with my other real estate agents!
Lew, And most don't look good in orange and/or the stripes are going the wrong way to be flattering! ha!
Ginevra, thanks for the comment and I'm glad I could share something of value with you.
Joe, I suspect it's not going to return to any state of "normal" for some time to come. :(
Donna, nothing is easy anymore, is it?
Bryant, it almost seems that the well qualified these days are the ones that get scrutinized even more???
Nancy, you are right! Not only "in stride" but appreciative and even follow the instructions better!
Rob, good perspective. thanks for bringing that up.
Ruthmarie, I can't begin to make reasonable excuses for any of your situations. I hate it, too!
John, It does seem that EVERY deal is a struggle. But that's probably why we love it! ;)
Denise, Just try not to shoot the messenger.
Tom, Yes, let's hope the day will come when the pain is forgotten, and the payment is appreciated!
Rodney, Quite true.
Brent, Yes, most do. It's just once in awhile....
Paul, thanks for stopping by and leaving your kind words.
Stephanie, I agree. Once a buyer has experienced the No Income financing program, it's almost impossible to shift their thinking to what's going on today.
Russ, Thanks for chiming in. I bet I've seen more fraud attempts today than ever before. Why? Probably those were the past "No Income" borrowers. And the fact that our buyer was putting $600k down on an $800k home sounds good upfront... but there are still (believe it or not!) lenders doing 125% 2nds! So now where is the collateral? Prudent lending is what we must strive for (and support!)
Chris, A lot of loan officers from "yester-year" also have a hard time readjusting.
Jim, great comments. OH... and don't forget the "over disclose" part! :)
It has become ridiculously difficult to get loans for so many people. I understand lending was lax, but the pendulum has taken a serious swing to the other side.
Ruth congrats on the feature! Very good post!
I personally have major issues as well with the government. As long as their are two aisles, left or right, conservative or not, our country is going to hell in a hand basket. I pity our future generations.
Christine, As lenders, we agree. But we just follow the guidelines given by the investors. :(
Debra, Thanks so much. And thanks for stopping by!
Don, Let's hope it doesn't end up as bad as we fear.
It's tough out there, and Thank you Ruth for always being there to help get things done! I keep thinking that pendulum is going to start swinging in the other direction and hear things like "It will get better in another year..." That still seems to be the saying for the last couple years. Well, "It will get BETTER in another year!"
Views and opinions expressed on this site are not necessarily those of WR Starkey Mortgage.