WC Varones

Don't lend your hand to raise no flag atop no ship of fools

Mortgage Qualification -- American = Crook

Hi folks, NL here, it's been a while. Where have I been? Well I've left the communist confines of California and relocated my family to the Philadelphia area. Why? Hmmmm, I don’t make 7 figures so I can’t live comfortably in CA. I also want my kids to have a good education, I can’t afford private school and I would prefer a student teacher ratio that is less than 40. But I can comment on this topic more in the future.

Tonight I want post a comment on the absurdity of mortgage qualification. Since I’ve moved to PA I can suddenly afford to buy my first home. In the Bay Area this was impossible with my low 6 figure salary, but my God have I found the promised land! I’m going to close on my first home on .7 acres with a 2300 square foot house in a lovely area known as the Mainline. This property would literally cost 1.2+ million in Walnut Creek, CA. Here we are south of half a mil and the people in my neighborhood tell me that our 10 out 10 rated school with an average class size of 17 is the best in the state. Of course I’ve found out there are 8 school districts here where people claim the same but whatever, it’s better than what we were looking at in CA.

So I am about to become landed gentry and I’m trying to finalize the loan. The only debt I have is a car payment for my VW Golf (base model) and my credit score is 800. Yet I’m being treated as a common drug-money launderer by the banks that would provide me a loan. (BTW, I haven’t applied to HSBC and their not-even-alleged drug money laundering, but I hate them so much so I haven’t even tried. Maybe that's my mistake). So I’m left to fend for myself and I want to post exactly what I’m hearing back about some foreign cash I have.

My wife is from the foreign land of samba and football, but she speaks perfect English having studied English and American literature in college. We visit her foreign land almost every other year. My brother-in-law is one of the most generous, wonderful human beings on the planet and last time we visited he put our hotel and car rental bills on his credit card because he works for a huge firm that gets great discounts. So at the end of the vacation I handed him a wad of foreign land cash to cover our costs and thanked him greatly for helping us. He took the money and replied "no problem." When we returned from the foreign land I opened one of my bags to find an envelope that had written on it ‘You’re Welcome’. And in the envelope was that wad of cash, 3000 real units of his country’s currency, which equates to about $1500. The generous saint wanted to provide his sister with a vacation present. Awesome dude.

Fast forward to this week and my hassle in getting approved for a loan. Many of my deposits of legal US currency have been questioned and I’m being asked to provide bank statements of those that provided me these legal US currency gifts over the holiday period. I have resisted stating that their business has nothing to do with me and I will not ask those generous relatives for their bank statements just because they are old school Chicago and like to deal in cash. The response has been that this is Fannie Mae rules, the Government OWNED entity that contributed to the almost immediate, and certainly long term, destruction of this nation.

I’m likely not going to get a loan because of this though I am doing nothing illegal; I’m transacting in the legal currency of this country and I’m a super credit candidate. So I pitched to the lender the foreign currency scenario I mentioned above to find out if I could convert that into USD and use it, just for kicks. This was the response:
"My processor said it could possibly fly with a letter of explanation, the documentation of the exchange and evidence of your trip last year, i.e. passport, or other."
That is hilarious. I received cash gifts from relatives over the holiday because they wanted to help me finally cross the home ownership finish line. Now I’m required to provide my relatives' bank statements, which I will not be providing. BUT if I happen to acquire foreign currency all I need do is supply a letter and port of entry stamp.

The moral of the story, I don’t know, avoid fiat currency banana republics like the USA? Or one might suggest that if someone provides you cash, leave the country, convert the cash into a foreign currency then write a nice letter and show your passport with proof you left the country, and deposit the funds. One used to maybe consider this very suspect, but ironically no. It’s suspect to deposit large sums of US currency. Only criminals would do that. Depositing sums of foreign currency, well, as long as you write a nice letter…

As a footnote, I’m not going to convert that foreign currency into USD because we are going to head back there next year and I’m just going to use it then. Instead I’m going to look into alternative loan options that don’t involve organizations that have direct access to the overnight Fed lending window. They will only have indirect access but hey, one level removed is still something.

Remember folks Americans are money laundering terrorist until proven not, over and over and over again. Now get back in line at the airport you scumbags....

6 comments:

Anonymous said...

I meet a real estate agent who moved to Tampa to sell from Austria, of all places. Was a student and stayed. I asked him, who the hell is buying all these houses? I knew no one who was selling, buying or moving myself, and as a matter of fact, the only 3 I had known to move in the last 3 years walked away. He said it is all foreigners, mostly Asian Indians, all cash deals and he is busier than a whore in DC.

As far as Americans, he said it is a miracle when he can get one qualified, regardless of credit.

So, apparently we have gone from anything goes to cash only. Sounds like another bubble when the cash dries up, which it eventually will.

Independent Accountant said...

NL:

I sympathize with you. About 11 months ago I refied my home. Loan to value ratio: 69%, income to loan ratio: 45%, mortgage service to income ratio: 25% and FICO of 808. This was a "no-brainer" refi. It took two months and I told the lender he could take his refi and shove it. I would only provide what I thought necessary for him to make the loan. Eventually, he waived the other crap.
Anyone who thinks terrorists are deterred by all this crap is an idiot.
Congratulations on leaving California. I escaped in 2005.

IA

Anonymous said...

You'd have to be out of your mind to be buying a house in the current environment when you can rent a house for half the costs of buying it.

Negocios Loucos said...

Yeah IA, I'll share more on the move later. I emailed you to say I've headed this way but you must not have gotten it. Check your inbox from a few months ago.

Anon, there is definitely a valid argument to not buy but I'm in the camp that in 10 years I'll be paying off this mortgage with toilet paper. Further as Charles Hugh Smith points out, this bubble is really hurting renters more than buyers. My mortgage will literally be $200 more than my current rent and my current rental home is tiny compared to our purchased home. I understand all the added costs but after 20 years of renting I'm actually looking forward to living in MY home.

Without the inflation thesis this is not a good idea but I want to have fun working on my home, on my land and know that my kids are going to be going to the same school for 10 years unless things get drastic. But I certainly appreciate the opposing argument.

Anonymous said...

I'm an old timey banker back from when we still did lending based on the three C's (collateral, capacity, credit). Even back in those old days we would have wanted to investigate cash transactions leading up to your loan.

From the point of view of the mortgage lender having cash appear in your account prior to closing on the loan raises at least two possible red flags:

1. You have arranged some other private financing to make the down payment and therefore your overall leverage on the deal will exceed our limits. It is difficult for me as a mortgage issuer to tell the difference between money that appeared in your account as a true gift and money that you have to repay to Uncle Jack over 5 years at 5% interest or whatever.

2. Maybe the cash transactions represent true cash gifts from family/friends. That's nice, but again from my perspective as a mortgage lender that is also not the best. I would rather your skin in the game on the deal come from money you sweated to earn rather than a gift from Aunt Mabel. You might not care as much about losing money given to you from that old b***h for all I know. Besides, ever seen someone in Vegas gambling on what they believe to be the "houses money"?

I can't comment on Fannie/Freddie and their behavior nowadays, but if I was a hard money lender working in the industry I would be thinking in the above manner. It was how I was trained. Probably means I wouldn't get to do too many deals these days.

WCV said...

Unless the borrowers are at risk of doing serious physical damage to the property, I would be very comfortable lending with 20% down regardless of how much of the down payment was a gift.

Figure 10% in foreclosure costs, and I don't think Zimbabwe Janet will allow real estate prices to drop 10% again.

A salaried professional with a single family and 20% down? I'm making that loan all day long.

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