Monday, October 31, 2011
Do You Want to See Something Really Scary?:
Do you remember Twilight Zone--The Movie? I did not see it--my mother was extremely strict and never allowed us to watch horror movies or even light comedy containing anything that smacked of the occult. But I remember my father coming back from a trip and telling us that he had been driving with his nephew on a dark, wood-lined road when his nephew told about the scene from Twilight Zone where a set of characters are in a car at night trying to scare each other. Finally, one of them says to the driver of the car, "Do you want to see something really scary?" When his friend agrees, he turns his face away, and when he turns back he has become a monster who kills the young man who is driving.
If Hollywood were making that movie today, rather than having the actor turn into a monster, the director could have just had him go apply for a mortgage loan. When he saw the list of conditions, the low appraised value of the property, and the length of time that it takes to get financing today, he would die of a massive fear-induced heart attack.
Sound like an exaggeration. It isn't. After 13 and a half years in mortgage lending, I have never seen housing finance even close to as bad as it is today. Consider these real life Tales from the File Cabinet:
1. A pediatrician who wants to refinance her custom built home but cannot because her 685 credit score does not qualify her for 90% financing she needs in order to be able to pay off the existing note. Her income is over a quarter of a million dollars annually and she has virtually no debt, but last year she had a small collection (under $60.00) with the U.S. Post office, and that is keeping her credit score artificially low. Since El Paso does not qualify for expanded conforming loan amounts, she cannot get an agency loan.
2. A self-employed business man with a credit score of 734 who filed and paid taxes on over $250,000, and qualifies under the existing HARP guidelines but is having difficulty getting a mortgage loan because his company's K1s report non-allowable losses for the current tax year. The losses are non-allowable so he cannot write them off his 2010 taxes, but the underwriters want to subtract them from his income anyway, which means that he does not qualify.
3. A salaried borrower in Austin, Texas making over $150,000 a year in salaries and commissions who cannot get financing because even though the home he moved into in Austin, Texas has previously been used as a rental property and filed that way on his taxes, he does not currently have a tenant in the house, so Fannie Mae will not allow him to use a lease to offset the payment unless he can demonstrate 30% equity in the property--which he does not have in this current climate of depreciating values.
After using the enhancements to HARP for media coverage last week, this week even the Obama Administration is admitting that the new enhancements to the program will allow only modest gains for refinancing. In reality, because of extremely stringent guidelines even borrowers with good credit, beautiful properties, and high incomes cannot get loans. These are people who want to refinance so that they can save hundreds of dollars a month on their mortgages, or because they want to shorten the term to a 15 year loan, ultimately saving them hundreds of thousands of dollars, or who would like to be able to take advantage of low interest rates and low housing prices to buy a new primary residence. All have long credit histories which demonstrate both an ability and a willingness to pay. And all have excellent documentable incomes. But in the current environment, they are shut out of financing by guidelines so strict that they are geared to ensure that virtually no one get a mortgage loan. That's pretty scary.