Keep it Simple -Remove Obstacles - lending and the Steamboat Real Estate Market

Wednesday, October 26, 2011

Why can’t it be this simple?
Q: Do you have a job?
A: Yes
Q: Do you pay your bills?
A Yes
My ideal world:
Banker: OK borrower, your self-employment status concerns us, but we have looked at your credit score of over 750 and have determined that by giving you this new mortgage at around 4% and the fact that you are currently paying between 6 and 9 % on 4 mortgages, that you are a safe risk. We think that if your payments are less than you are currently paying now, you will continue to make those new payments because they will be less. Therefore, we will refinance your 4 loans into one or 2 loans at a much lower rate.
Me: Thank you!
My real world:
Me: So why can’t I refinance then Mr. Banker?
Banker: Well, it’s not that simple, see you are self-employed and we have looked at your tax returns for the past two years and have determined that you just don’t make enough money to guarantee us that you will continue to pay your bills.
Me: But I do pay my bills! You see that by looking at my credit score right? See, no missed payments. And I make pretty good money, just lots of deductible expenses because my costs of doing business are much higher now and I had some unavoidable medical bills, and my kid costs a lot.
Banker: Well you have too many bills like those medical payments, child care, car payment for your business, high utility bills because you live where its cold in the winter etc. Your debt to income level is just too high, we can’t refinance you.
Me: Yeah, lots of bills, that’s why I’m here asking for help. My thought is, if you refinance me at say 4%, that will reduce my monthly mortgage payments from $2000/month to about $1400/month. Doesn’t that make sense that I’m low risk? I pay less with my new loans than I pay now and then I have $600/month to pay toward my other bills? And the best part is, if I want to sell my house I have some equity built up and go buy another house that costs less now than it did 6 years ago. What da ya think?
Banker: NO DEAL
I just have to ask why can’t it just be that simple? If you currently pay your bills and you want to pay less each month with a new lower mortgage payment, you get a new loan. Many believe we need to fix the economy and the housing market will fix itself. I believe we fix the housing crisis and the economy will fix itself.
The government can continue to dribble out mediocre solutions , but what I keep missing in all these articles I read
http://www.nytimes.com/2011/10/25/us/politics/administration-proposes-changes-to-mortgage-refinancing-program.html?pagewanted=2&nl=todaysheadlines&emc=tha23
is, what if we are not under water on our mortgage, have a job, and pay our bills? We want to borrow some of this cheap money too.
The solution seems so simple - remove the obstacles as the Times article says. Loosen up on the debt ratios (because everything costs more these days) and bet on our past performance. I think you’ll see a lot of people in my situation who can and do pay their mortgage and bills, but can’t do so under the current tightened lending rules because our debt/income ratio is too high, or we are self employed and our tax returns just don’t fit the mold due to our deductible business expenses.
Until we meet in the middle somewhere between what lending standards used be and what they are now, I see a slow national recovery.
I’m thankful that our Steamboat Springs real estate market is local and for the most part not affected by this national crisis, but that being said, there are many here in my situation who could move forward with a change in the lending practices.
Dean Laird

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