What Kind of Loan Never Defaults?
In the 1990s, I had one destination for borrowers with a lot of equity and savings, and excellent credit: First Nationwide/Cal Fed.
The lender required only an appraisal to prove there was a 25% equity cushion, proof of liquid assets equal to 6x “stated income,” and a credit score of 740 or better.
The loans took about 15 minutes to package and underwrite – and virtually nobody defaulted (missed payments), ever. I knew that because I lived next to the bank’s chief compliance officer.
Even better, the rates associated with those loans were way lower than anything Fannie Mae offered.
I think about that constantly because we had thousands of borrowers in our database in 2020 with those exact same criteria who wanted to refi.
BUT – instead of offering them a 10-minute First Nationwide loan, we had to run them through the full underwriting loan-wringer – and it was brutal for many of them, particularly if they had complex tax returns or were self-employed.
Why Are Loans So Hard Now?
Regulations prevent lenders from offering super low rate, super easy loans to obviously low-risk borrowers – even if the lenders know there is no chance of default.
Yes, the 2008 meltdown made some regulations necessary. But, as always, our government vastly overreached – and now life is far too difficult for highly qualified borrowers.
A great example of this is the blog I wrote about a pitcher we helped several years back; he made $4 million per year, had millions in savings, and had debt ratios in the 3% range – and he still had to jump through an insane amount of hoops to qualify for financing.
Southwest Airlines Melts Down: Cancels over 15,000 Flights
And now to Southwest Airlines… Most readers know what happened with Southwest recently, as the entire airline pretty much melted down.
Southwest recently canceled over 15,000 flights after severe winter weather set in – literally stranding tens of thousands of passengers.
Southwest’s booking system lost track of its pilots, flight attendants, and planes – and thus could not schedule anything correctly (not knowing where any person or any plane was).
Everyone was rightfully infuriated by the massive inconvenience.
As a result, state attorney generals, members of Congress, and cabinet heads are all clamoring for investigations and more regulations to stick it to those evil airlines!
And – that is utterly terrifying, and the point of this blog.
I hope beyond hope that the market is left to settle this issue (I already avoid Southwest like the plague) and that Congress and regulators don’t.
Because, if the government takes over, we will soon have to submit three years of tax returns, an employment verification, three bank statements, a credit report, and a full airline flight application every time we want to fly.
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