The Lending Quake

If you or someone that you know is in danger of foreclosure, they can rest easy for a few days. The big banks and Fannie and Freddie are garnering a ton of free positive publicity for delaying evictions from December 21, 2009 to January 3, 2010. They do this every year at this time, but this year, they seem to be getting a bit more positive PR from it.

What is interesting is that the banks are blaming the problems on the borrowers. As Obama calls for more loan modifications, banks are defending the small numbers helped by blaming the consumers. The banks claim that borrowers are not providing the information needed; are not returning calls; or simply derail the bank’s efforts.

By comparison, the consumers claim that the banks consistently “lose or misplace” the provided documents; change the rules mid-stream; keep them on hold forever; and ask for the same items over and over again.

Ah, the old adage of the truth lying somewhere in the middle seems applicable. Looking at hard data, one of the largest banks in the country (by some estimates, a bank that holds almost 1/3 of all mortgages) has only modified just under 150,000 mortgages. Of that pitifully low number, only 98 have been converted to permanent status! Shameful.

Sadly, for those looking to buy or refinance, the same service levels seem to apply. I have spoken to several small mortgage broker shops, mid-sized mortgage bankers, and executives at the big banks attempting to gain some insight and clarification into the poor (and getting worse) service levels from the banks.

The overwhelming consensus is that banks are not giving good service to anyone. This includes those needing a loan modification or those buying a home. The brokers are worried because they look bad based on the service from the lenders that they sell to. The bankers are worried because the bigger banks that they sell to are taking longer to clear their lending credit lines, eating away at their already shrinking margins. And the big banks are worried sick over government intervention. Trickle down economics indeed. I am thinking of something else that is known to run downhill.

An alarmingly high percentage of mortgage and lending people has or are leaving the industry. Some should have never been in the business anyway. Those remaining are overwhelmingly pessimistic and looking for answers, with none to be found. One valued source, with 30 plus years of experience shared with me that he feels we are 10 years away from normal lending!

FHA just announced that they will delay their implementation of the new appraisal rule until 2/15/10. I still strongly suggest getting your FHA case number before that date to allow you the benefits of current rules over the future ones. This rule is a huge mistake and rife with problems that will further irritate buyers, sellers, Realtors and loan officers as well as cost consumers more time and money.

November New Home Sales figures came out Wednesday at a very low number, shocking stocks and many others. While economists debate how this will affect housing, I think it is more a result from Congress delaying the extension of the Homebuyer’s Tax Credit that month. We shall see.

Again, with only FHA/Veteran, Fannie / Freddie, USDA and small portfolio lending available, the options for borrowers is few. The lending paradigm has shifted so severely it will register on The Richter Scale! When eternal optimists in lending and real estate start sharing their version of doom and gloom, I for one, start to take notice.

On the bright side, at least we know how tight lending has become rather than it being a sudden surprise. It is imperative that anyone looking to borrow have all of their documents in order and be prepared for delays. As the industry continues its contraction, we will see more problems but as more are affected, they will complain to their legislators. Maybe then we will see some positive laws enacted. Case in point: a friend was at a holiday function and started talking to his Congressman who also attended the event. He explained that he was a small business owner for years and now is an account executive for a large national bank and he is witnessing first hand how these laws are hurting consumers and small businesses.

The Congressman listened and then replied “Do you have a lobbyist?” Translation: Pay tons of money to someone that will contribute tons of money to re-elect me and maybe I can help you. My friend rebutted: ” Well, yes we do. However, I can assure you that if you vote for things that hurt my job I will email my clients and we will vote against you next year and end your job.”

“Can I have your card? I would like to set up a meeting with you and your friends after the New Year” was his response. Ah, politics, the second oldest profession.