There may be murderers and bank robbers with 800 credit scores who are eligible for the best mortgage financing available. This is b/c financing is available for anyone who can manage his/her credit and income, irrespective of his/her underlying character.
This occurred to me for a couple reasons. First, there was an article in the WSJ last week about how regulations inhibit community banks from lending to small businesses. The writer pointed out that community banks are the last refuge for character-based lending – where the banker personally knows the borrower and will take a chance on him even if his “scores” don’t meet all the standard guidelines.
Without community banks and character-based lending, many small businesses have no options for financing b/c the big banks are all about scores and often oblivious to character.
The other reason this occurred to me is the constant complaints we get from borrowers in the mortgage arena. Most of our borrowers have extraordinarily good character and they wouldn’t miss a payment for their life. They therefore get extremely frustrated when they have to provide a multitude of seemingly irrelevant loan conditions – explaining deposits, paper-trailing funds, documenting every dollar of income, employment and tax verifications, etc.
Regulations and Wall Street of course require us to get every minute condition, no matter what, b/c every “box” has to be checked for compliance purposes and so we can sell our loans.
In the movie “It’s a Wonderful Life,” Jimmie Stewart’s character made all of his mortgage loans based solely on character. In 2017, loans are 100% based on scores, guidelines, and checking off all the boxes.
We wish we could get conditions waived for people with great character, but those days are long gone.
Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646