Today, Ben Bernanke, U.S. Federal Reserve Chairman, said mortgage lending standards appear to be “overly tight.” Well, finally! I don’t mean any disrespect, but what took you so long to come to that conclusion? Mortgage professionals have been saying this for a couple years now.
Our economy will not fully recover until the housing market improves. And with the current extreme underwriting guidelines, that is not happening fast enough.
We went from “if you have a pulse, you’re approved,” to “if you have perfect credit, high income and low debt, you may or may not be approved.” Underwriters are running on FEAR. They’re scared to death of approving a loan that might go into default. Consequently, the approval process at the big banks and with many other lenders has gone over the line of common sense.
I’m calling for REASON and COMMON SENSE to come back to underwriting. For example, if an otherwise perfect borrower had one weird credit snafu, give the person some grace and let them buy a house. What’s the point of denying someone with a good income and good down payment just because of one “oops” on their credit report?
Here’s another true scenario for you to start using common sense on: A self-employed married couple, both attorneys, have $1 million in liquid reserves. They want to refinance their $500K mortgage to get a lower rate and lower payment. Look at the picture: they could choose to pay off the mortgage, if they desired; but their tax adviser has told them to refinance and keep their cash in investments. What did the lender say? DENIED! That’s right, their request to refinance was denied by several banks and lenders. Why? Because their tax returns showed they made less money this year than in their previous year.
Declined income = no loan. (Even if the debt-to-income ratio was still reasonable.)
I could give you more real life scenarios like this, but I think you get my point. Let’s bring common sense back into underwriting, loosen the ridiculously over-tight rules, and get our economy moving up again.
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