Underwriting?
The mirror test for underwriting is finally over. It’s been over for some time, but prospective home buyers still don’t know you’ve got to have consistent employment, decent credit and financial assets to get a home loan these days.
In the past few days I’ve had a “come to Jesus meeting” so to speak with 2008 underwriting. Unfortunately I’ve had to turn down two loans because the underwriters are paying attention. One deal was pretty obvious. The other one was questionable, but these days, ties go to the lender.
Then there’s the wannabees. Considering the times, I don’t feel bad turning down boneheads that can’t afford homes. They’re being saved from themselves and declining values. Today I had the pleasure to discuss real estate with a man, a young man, who made a record
for me. This was the first person I’d pulled a credit report on who somehow managed to have a past due amount on every credit line he had. There wasn’t a single positive trade line. Somehow, this young man thought he could somehow manage a house payment. Based on his credit, creating a loan for this borrower would have created a 30 day early payment default. Despite his track record, this young man blamed me for his misfortunes.
My second favorite wannabe borrowers are those that barely qualify. In fact, if I don’t run automated underwriting on them, I still have questions. When I suggest that the chances are real good with their 596 credit score, they all of a sudden want to shop rate on me.
I’m in a unique situation now because I work directly for a lender. We’ve got in house underwriting that can make the final decision. If I can get a 596 score to go these days, it’s literally a miracle. These borderline borrowers all of a sudden think they’ve got the upper hand.
Another unique situation I’m in is that with Government loans, particularly VA, rates are not dependent on credit score. Either you qualify or you don’t. There is no leverage for borrowers dependent on credit score. In fact, if you don’t have a 720 credit score these days and a 20% down payment, if you’ve got a lender that will loan you money, you should be happy to get a loan at all. It’s the 1970s, 1980s all over again.
This won’t be the situation forever, but it’s the situation we’re in today. If you want to buy a house, either you comply, or you rent. It’s not my fault. In an ideal world, I’d give a loan to everyone who wanted one. Today were living in the fall-out of that philosophy. Not everyone who wants a home loan deserves one. Not everyone who fits an arbitrary bank’s criteria can sustain the payments for such a lifestyle.
The new paradigm is about income, debt levels and credit scores. If you can’t keep up, you won’t get a home loan. There’s no one to blame but yourself. Make the adjustment.