November 15, 2018

RealPartner.com – Can’t We All Just Get a Loan?

Banks continue to restrict lending and services while squandering billions in tax payer monies

The answer to this play on pop culture question is no, but nor should we.  Nowadays however consumers who can’t get a mortgage are seen as “not viable”, but it’s for the wrong reasons.

Let’s go back, but not too far back, to a time when it was actually easier to get a mortgage than it was to get a credit card (true story).  In the beginning of the decade, a decent credit score, an acceptable appraisal and a clear title were basically all that was needed to obtain financing.  There was no need for a manual underwriting review or analysis of the client’s income, job or asset qualifications as most everything was based on a simple computer generated credit decision that is still in existence today.

Well, we all know what happened and the problems that this “computerized underwriter” caused. But since the mortgage crisis, no matter how much we attempt to sustain Wall Street and the big banks, they still reach out for more help with one hand and then refuse to cooperate with the other.

Wasn’t the whole purpose of the government’s bank bailout to encourage and expand lending and to enhance bank procedures for the good of the industry and the economy?  Well, the same scoundrels who convinced the world that Sub Prime mortgages were “good loans” have pulled yet another fast one.  As opposed to taking a really strong look at where their guidelines and procedures failed and investing our money to improve them, the banks have deviously chosen to take our monies and endorse changes that only seem to benefit themselves and their wallets.

Instead of properly appropriating billions of dollars in bailout money, the banks have purloined the money, spent billions on their own advertising, tightened their guidelines, raised credit score requirements and fundamentally refused to neither revise procedures nor cooperate with any government modification plans geared towards the good of the consumer.  Then they lay off thousands of employees, lie about keeping their executive bonuses in the billions and all along hope that the American people wouldn’t notice as we continue to walk into one of their branches. 

We need to let these banks know that improving an industry is not accomplished by portraying a happy family running across the lawn of their new home in a slue of new TV commercials, which in essence, we taxpayers are paying billions of dollars to produce.  This is just another insult to our intelligence. The mortgage bailout was not supposed to be a PR campaign…it was a financial agreement in which the banks, driven by greed, have been in violation of ever since.

These tactics have wrongly made it more difficult to get a mortgage today, but what many consumers and real estate professionals don’t realize is that it’s also become much harder to ensure sure that the banks will lend when they “say they will.” Regrettably, today’s “pre-approval” procedures have never been updated to address any of the new “full doc” guidelines and the additional documentation requirements they carry.  Add to this the simple fact that a loan officer is simply not authorized or capable of actually approving a loan.

The entire approval process fails to legitimately verify all of the vital credit, income, asset and employment credentials needed to qualify until the very end of the transaction.  This leaves consumers and real estate professionals with no prudent way of pre-determining whether or not a borrower can be approved for a loan until the final underwriting stage.

Instead of identifying these severe procedural defects or investing our tax money to update this process for the good of the consumer, the bank’s latest cost cutting strategy is to simply eliminate the pre-approval process altogether!  They may even go as far as to eliminate the conditional commitment and only issue a firm loan decision when a file is officially “clear to close.”   These bank initiated procedures are simply more examples of eliminating customer services for profit.  The reality is that the banks are just setting up more “pre-calculated” numbers games in their favor.

Over 50% of pre-approvals today are adversely countered or ultimately denied by underwriting thus terminating entire transactions.  This awful pull through percentage doesn’t hurt the banks at all as they make so much more profit on the 50% that closes due to the millions they’re saving by limiting and/or eliminating these necessary frontline services.  However pulling back on the qualification process eliminates our approval security and ends up costing us millions of dollars on the other 50%  via lost fees, failed decisions, wasted time and botched closings. 

This is not very surprising behavior considering the banks have always demonstrated a strong desire to avoid any and all accountability whenever possible.  They have also proven that the last thing they’re going to do is to invest any time or taxpayer money on revising any procedures or guidelines that would help benefit the real estate industry, consumers or anyone else for that matter, except themselves. 

In the meantime, we’ve all become conditioned to rely on this long-standing process, so we still base our essential decisions on these pre-approvals.  Scores of potential home buyers, sellers and real estate professionals continue to risk valuable time and money only to discover months later that a bank underwriter will not approve the desired loan solely based on the buyer’s credentials.  The only thing worse than this broken system is to not have any approval procedure at all;  that’s exactly what banks are planning to do next.

The grim reality is that financing incentives and incentives to finance are what really drive home sales, not just interest rates and prices.  Recent history has proven that home values will typically maintain and flourish the more attractive the financing methods.  Adversely, the more unreliable the financing process, the more home values will continue to remain unstable.  Consider that any time a contract falls through forcing a house to go back on the market, the subsequent offers tend to come in much lower compelling the seller to finally sell the home for less, or even worse, as a result there may be no sale at all. 

No wonder we’re in a bigger mess than we should be.  As long as the banks continue to focus on their own selfish wants (I can’t even say needs) and disregard the needs of an economy that relies on the affluence of their financing practices, things will continue to get worse before they get any better.

Interestingly, most of the new banking laws are focusing on disclosures of rates and costs to consumers, which is fine, but I’ve yet to see one law or legislation created to stop these banks embezzlement of tax payer monies.  Why hasn’t the government forcibly stepped in yet?  Maybe we should ask the feds who just secretly doled out a trillion dollars to international banks and companies without telling the American people a thing.  Like most Americans, I had to find this out on WikiLeaks for crying out loud, but that’s a whole other story for another day.

Comments

  1. Malcolm Carter says:

    I gave up on pre-approvals long ago. As you know, underwriters’ these days are giving a second look to their own approvals immediately prior to closing. Such problems they cause! Yes, lenders need to be held far more accountable. Moreover, they need to use judgment, not merely computers, to decide on the worthiness of a buyer and her/his property.

  2. really quality piece Joe—-very nice example of how to do it —