Wednesday, June 6, 2012

One of the Reasons There Will Be No Economic Recovery in the US

 I am as livid as I ever tend to get. Our daughter, who is in her twenties, has a good job, has saved her money, and worked hard to pay student loans and establish good credit. In our area, there are no apartments for fifty miles, and so in this economy, people tend to come home after college, save their money, and either build a home, or buy one. This is a challenging task in the economy in which we find ourselves. In many places in the US, three or even four generations now live under one roof. Our daughter had been looking at homes for sale, mostly repossessions for about eight months. She finally had found one that she thought she could work on and make liveable. It's a nice house, less for the house itself and more for the setting and the locale. She had already qualified for a loan and had a qualification letter. She has already paid hundreds of dollars for a home inspection and hundreds for an appraisal, and is about to pay hundreds for a survey. Today, two weeks before her closing and moving in to her house, the word comes through that "Underwriting has denied the funding of her loan". What the hell ?  Why?   Apparently, their answer was that "She had too many bad debts and insufficient savings". What ????? She has no "bad debts" whatsoever ! On a credit report they found one bill for $123.00 from a hospital about a year ago which has long  been paid, and that's all there was . Not having sufficient savings ? Well this they knew when they wrote a letter for her to go with the Contract she put on it !
Having done a little research on this, this evening, I learned something. Apparently, mortgage companies are pulling people in by promising a 3.3% or even a 3.0% mortgage rate, and then finding a reason at the last minute not to fund the loan. Then, when the person is heavily invested in the home, and has paid for the survey, the appraisal, the inspection, had the power put into their name as of the closing date, and rented the moving van, they bail, only to offer a higher rate for a nebulous reason at the last minute. At this point she has not been offered the higher less attractive arrangement. I would imagine they will let her stew in horror for two days before they attempt to rescue her with a plan which makes them more money. Little do they realize that she won't play. As disappointing as this is, she takes this as a sign that this is not meant to be. She will not be baited and switched. If they don't find a way to find her loan without adhering to the terms in her disclosure agreements thus sending her to the poorhouse, then she has decided simply to save all her money, stay here, and then build a home for cash in a couple of years, quite possibly on a piece of land on the edges of the farm. I suppose I have the space to accomodate the furniture, dishes, silverware and everything else she has collected from my parents and on her own for her house, for a few more years. The mortgage company is particularly stupid. Had this worked, she is in a particularly prominent position at work, and has no less than fifteen friends who would have followed her to this realtor and to this mortgage banker.  Now she will tell them all what happened, and who she was using.  She would also have guided her brother, our eldest son through the same process. I would also have told my friends who have post college kids living at home. People who buy homes in their twenties and who have a positive experience, tend to do it again and again. I bought my first very tiny home at twenty two. Then I sold it at a profit when I was twenty-six, and then bought another, with more money down that time. We moved up about every four years, each time, going to a larger home, and putting more money down, and so each time, our mortgage payment decreased. Most people tend to be loyal about their mortgage companies, and this had been a golden opportunity for them, and for her. In addition, people with homes tend to buy furniture, have home maintenance done, have children, and buy things which contribute to the economy. By stalling people into the home market, they stall any type of economic recovery in the US. More and more ordinary people think that the US, and the world, are headed for a complete economic collapse, and a genuine Depression. Perhaps our daughter's inability to get her loan funded at the last minute, is in fact, a gift, as much much worse economic times are coming.

Maybe this is who is doing the underwriting.    ( Photo found on: )  

Update:   Before posting this, we decided to let the mortgage banker see if he could find another loan program that would finance this home, albeit, at a higher interest rate than was first discussed.   She was actually considering this until she read the attachment, which is the "Statement of Credit Denial, Termination or Change".     Let me preface this by saying she plans to borrow only enough that her payment would be lower than rent in this region.  The reasons they are stating for declining her loan are as follows:

    X    in the box which reads  " Delinquent past or present credit obligations with others."
     This is completely untrue.  She has a medical bill for $123. which went to collection which we never received as an actual bill, which was paid in full in January, 2011.  It's on her credit report !

    X in the box which reads  " Garnishment, attachment, foreclosure, repossession, collection action or judgement"

        What ?   There is no such thing in her experience, on her credit report at any time.

   X   in the box which reads   "Payment Shock"

          Going to a house with a payment of half the payment of local rents is a shock for everyone, but not nearly the shock of  being turned down for a loan based on dishonest, incorrect and misleading information.

          The house must close on time, and now she has no mortgage company, and no more time she can take off from work to try to rectify this.   House lost thanks to a mortgage company.


russell1200 said...

It was the tricks of the predatory lenders in the late 1990s that clued me in that our banking/mortgage system was being gamed to the point of collapse.

If you are a bank and really wanted to lend out money at a profit, why would you want to trick people into higher rates than they could comfortably afford?

Most corporations today take their future expected profits immediately. ENRON made the practise famous, but it is the norm on Wall Street. So they claim the entire profit (for 30 years as net present value -npv) on your daughters larger loan irght away ignoring that the higher cost makes it a riskier loan.

JaneofVirginia said...

This is compounded by the fact that her lender sells 100% of the loans it makes. They receive a payment for making the loan and I would imagine when they sell it. The rules changed even after preliminary underwriting approval when the rules by which the clients who buy loans changed them on a dime, probably due to the discomfort in Europe.

Matt said...

I wish I had something really positive to add.

I don't.

Since the occupy movement started, I've strongly resisted the urge to join the "I hate all banks" bandwagon. But as things have played out, more and more it seems that the reason to hate the banks are truly valid.

I'm also thinking that renting may be the way to go. Let someone else take the risks until after the collapse happens.

JaneofVirginia said...

She and I, have spent the day sending data to another mortgage broker in the hope that we can find one who won't sell the loan and therefore can be more personally flexible. So far, it's working, and they understand her point, but they have OTHER sticking points. The biggest concern is that the governmental agency which presently owns the house has a clause that she owes them $30. a day for every day that it has not closed past June 20. There are no apartments for fifty miles here, and houses rent for double her mortgage. She should do this, if of course, she can. Big IF.

Gorges Smythe said...

I was once denied credit due to false information on a credit report. They had me still owing for a vehicle that had long been paid off and traded off, they had one of my father's loans on my name, and had the bad debts of a fellow with a similar name as being mine. Always check your credit report before seeking a loan. Better yet, don't get a loan.

JaneofVirginia said...

This is good advice. You should check your report before seeking a loan. I try hard not to get any, but I do understand my daughter's foray into the housing market. Years ago, I remember buying an rv for a very low interest rate. I got a much lower rate than my husband would have because on his credit report they had that he had six dependents. There were no such dependents on my own credit report ! We bought the rv, and paid it off when our house sold, and we moved to another.