New rules frustrate recovery

“You’ve got to be kidding” is the howl being heard from mortgage brokers responding to the new underwriting rules.

The corresponding expletive from their customers underscores how far the pendulum has swung.

MY OPINION: THOMAS OLIVER
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We’ve gone from signing your name with an X and getting a king’s ransom for a mortgage on a McMansion to producing a ream of pay stubs, bank statements, 401 (k) documents, background checks, credit reports, swearing of oaths and lie detector tests.

Ok, so the lie detector test is an exaggeration.

But not by much. A broker told the story the other day of a client who had to sign a statement swearing he hadn’t taken any loan with the other lenders he’d inquired of in his shopping around.

A wife had to sign a statement that her husband didn’t pay toward the mortgage taken out before they were married.

From refis to purchases, mortgage underwriting today is about documenting everything.

“It’s become very stringent,” says Brooks Campbell, veteran Atlanta mortgage broker with Vanguard Mortgage.

Stringent isn’t necessarily bad. But too much nitpicking inevitably erodes common sense.

You’ve heard the stories.

Of a schoolteacher moving from another state. According to the new underwriting rules, this teacher is unemployed, having left her previous school system and not working again until school starts in August.

Or, the stories of the rich with bank accounts to prove it but who aren’t “regularly” employed. To get a new loan, you must provide proof of employment. Assets aren’t income. Forget that income from a job could end the day after signing, while assets would remain.

You need a job to get a mortgage, period. Or a loan modification.

Again, the stories you hear:

Laid off homeowner calls mortgage company seeking relief before he has to start choosing which bills to pay and is told mortgage modification is for folks who have missed making payments. He hasn’t.

The mortgage company can’t suggest he not make payments, but the insinuation and reality are obvious.

A mortgage broker chimes in: Yeah, and as soon as he misses a couple of payments and calls back for help, they’ll say no can do because he’s unemployed.

Which may be why the foreclosure prevention program hasn’t dented the problem.

A new Atlanta Fed paper on foreclosures proves the common sense notion, if not the conventional wisdom, that unemployment causes far more foreclosures than folks purchasing more house than their income suggests they can afford.

Unemployment, not predatory lending, is at the heart of our foreclosure crisis. If we are serious about a housing recovery, we need to focus on it for longer than a sound bite.

We need to stop the pendulum before it does what pendulums do.

No one is suggesting a return of Ninja loans (no income, no job, no assets). But overzealous underwriting that throws the baby out with the bathwater will only hinder the recovery.

Above all, we need to reclaim our common sense.

Thomas Oliver is a business columnist. He can be reached at

toliver.writeright@gmail.com