WHY GO THROUGH HELL IF I CAN JUST WRITE A CHECK FOR THE ENTIRE PROPERTY?
I had dinner last night with an extraordinarily successful woman who made this comment about getting a mortgage to finance a house: “why would I go through the hell and humiliation of qualifying for a mortgage when I can just write a check for the entire property?”
We have been hearing similar comments more than ever lately both b/c we have had more ultra-wealthy borrowers applying for loans and b/c guidelines for self-employed borrowers are tighter than ever.
PUTTING $4 MILLION BASEBALL PITCHER THROUGH HELL
I have blogged a few times about the mortgage we obtained for a pro-baseball player several years ago.
Even though he made $4mm per year and had no debt, lending guidelines forced us to run him through the wringer to get his mortgage.
Here is one of those blogs, where I point out that it is regulators, the need for loan salability, and secondary market pools that force lenders to demand so many seemingly inane conditions.
In other words, every loan we fund must check off every box required by both regulators and the secondary market, or we could easily lose hundreds of thousands of dollars if we have an unsalable loan or if we are fined by regulators.
IT AIN’T US – WE KNOW THEY’LL NEVER MISS A PAYMENT
We sometimes have borrowers with millions in the bank who can’t qualify for mortgages at all b/c we have to rely 100% on what their tax returns say.
So, even though these borrowers have hundreds of thousands of dollars of cash flow every month, they sometimes cannot qualify for a loan b/c of some issue within their tax returns (put there by well-meaning CPAs who were trying to limit tax liabilities).
When this happens, borrowers become extremely frustrated (justifiably so), and want to explain to our underwriters how exceptionally strong they are from a credit perspective.
My answer, however, is always the same when I hear this: “Nobody on the planet thinks you will ever miss a payment or even come close to defaulting. This unfortunately is not just about your ability to repay, it is about meeting guidelines so we can satisfy regulators and have a salable loan.”
NOT THE 1950s
I further explain that this is not like the 1950s when borrowers could verbally make their case for credit-worthiness at the Savings and Loan on Main Street. It worked then b/c those lenders held the mortgages. It does not work now b/c almost every mortgage is pooled in some fashion and there is no way for us to attach a long verbal explanation to every file for every future investor and regulator to hear.
A primary point we always want frustrated borrowers to take away is this: It ain’t us!
We want to approve every loan b/c that is the only way we get paid and we would of course approve almost all of these “ultra-wealthy borrowers” if it was only up to us.
But, it is not, and we are just following the rules thrust upon us.
These rules were made much more onerous after the 2008 mortgage meltdown and after the 2020 COVID crisis.
The mortgage industry has been dealing with very frustrated wealthy borrowers now since the 2008 meltdown and things are unlikely to improve in the near future.
So, wealthy borrowers should be aware of this, expect more of the same, and know that … it ain’t us.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167