Monday, August 24, 2015

Why is it so Hard to Get a New Home Mortgage?

Getting a customer to sign the contract to build a new modular home used to be the hard part. Today it’s probably the easiest part of the process.

The dubious honor of toughest part of the process has now fallen on obtaining a mortgage. We quickly blame the mortgage lenders for all the problems and for requiring more and more information from our customers but their hands are also tied behind their backs.


Here is what the mortgage bankers face every day and why it’s so hard to get a mortgage on new construction.

The government is clamping down hard. 
Since 2009, the government has created enormous regulation for banks in order to not repeat the housing crisis again. For example, the CPA letterhead and signature requirement was introduced recently in Feb, 2014, and it’s causing massive headache for tons of small business owners in America.

CPAs are charging usurious fees to audit because they can. Meanwhile, the government makes bankers send a new 7-10 page Good Faith Estimate every single time we change a single number.

The rules were created by the Consumer Finance Protection Bureau and were mandated under the Dodd-Frank Act to ban many of the loose practices during the housing bubble e.g. NINJA loans. To be considered a qualified mortgage, a loan amount cannot exceed a total debt-to-income ratio of 43%. In the past, plenty of borrowers were up to 70%+.

They don’t want to get burned again by liars. 
Borrowers signed a contract stating they’d pay their mortgages on time if we lent them the money and many didn’t. If everybody just paid their damn mortgage, this economic downturn wouldn’t have happened in the first place! In other parts of the world, if you don’t pay back your debts, you get beaten up, shamed, and/or thrown in jail. Only in America do people save so little, borrow so much, and have the audacity not to pay back a person or institution who lent them money in good faith.

Just think about the responsible homeowner who paid their mortgage every month during the downturn. Why should they suffer because their neighbor decided to welch on their promise? Good and honest people got screwed and they should be angry at their neighbors, not the banks who also got screwed. Borrowers who lied got bailed out with mortgage debt forgiveness programs by the government. Borrowers like to point out banks got bailed out too. But guess what? They wouldn’t have needed to be bailed out if people would just have made their mortgage payments.

They hate ungrateful borrowers who don’t take responsibility. 
Nothing pisses loan officers off more than an ungrateful borrower who defaults on his mortgage and turns around and blames the bank for not paying his mortgage! Loan officers are already getting blamed by their managers for approving bad creditors.
Blaming loan officers for why you can’t pay your mortgage is like blaming your university for you not paying back your student loans. Imagine suing your company for letting you go because you no longer wanted to work. We’re infected with this entitlement mentality that must be squashed. Borrowers should own up to their financial mistakes and stop blaming others.

Bankers are skeptical of anybody who doesn’t have at least 20% down
Borrowers start getting all pompous with bankers about why they should lend them money – as if it is their privilege to loan them money. Then they tell the banker that they can only put down 5%. Borrowers who can’t put down at least 20% have a tough time buying a home. One job loss or economic downturn and they are finished.

Owning a home is not a right, but a privilege. I don’t know where people got it in their heads that owning a home is their birth right, but it’s not. The people who keep paying their mortgages through hell or high water are the ones who understand their privilege.

They saved up, ran the numbers, and committed to a long term arrangement. They view their home as a home first and not as an investment. If everybody can view their home as a home first, there would be much less volatility in the housing market.

THE FUNDAMENTAL QUESTION FOR LENDER AND BORROWER

“If you lent someone money in good faith and they decided to NOT pay you back, and then they decided to tell everybody what a crook you are for lending them money in the first place, would you ever lend them money again?”

OF COURSE NOT!

Banks and mortgage lenders want to loan money to new home owners but between government regulations and past experiences, they are gun shy. Who could blame them?

It’s a good thing to populate the housing market with people who can actually afford their homes. The downturns will be less severe, and less people who’ve been paying their loans will be hurt by those who don’t.

Maybe America will be at risk of being a nation of renters, as stated by Wells Fargo CEO, Richard Kovacevich. But is that so bad if the alternative is a nation of homeowners who are at high risk of defaulting on their loans and causing everybody massive financial pain?

The banks would much rather have only responsible people borrow money, not entitled and irresponsible people who stretch to buy way more home than they can afford.

So the next time you have a customer with a signed contract and they are having a tough time at the bank, cut the loan officer some slack. They don’t have the final say anymore. That is left up to the Federal Bank Regulators and the bank’s Board of Directors, many of whom are still reeling from the foreclosure fiasco and the housing recession.

2 comments:

The Unkown Lender said...

Gary,

Great article but I'm a little surprised to see it on here. The things you mentioned are just the tip of the iceberg. Every week brings new banking regulations concerning mortgages.

It is worse than you presented.

Scott Stone said...

Hey Gary, Welcome to the Obama age. The new normal. Nothing is going to happen until there is a change in Washington. Period.
Lawfulness, honesty, respect and consideration are apparently concepts not familiar to your run of the mill community organizer / Alinsky-ite.
Sorry to be the bearer of bad news.