Mortgage Horror Stories: The U.S. Housing Industry Will Never Recover If Qualified People Can’t Get A Home Loan

By Michael, on July 1st, 2010

Back about five or six years ago, when the housing bubble was still rising, just about anyone could get a mortgage. Lending institutions were handing out ridiculously bloated home loans to almost anyone who breathed. It didn't matter if you had a rotten credit history, it didn't matter if you didn't have a job and in some cases it didn't even matter if you had any income at all. It was basically an orgy of mortgage lending. But now the pendulum has swung 180 degrees in the other direction. Severely burned by the subprime mortgage crash, mortgage lending institutions have been seriously tightening their lending standards. As a result, in 2010 it is extremely difficult to get a home loan or a mortgage modification. In their determination not to get burned again, mortgage lenders have completely overreacted and now a lot of highly qualified people can't get a home loan.

This point was beautifully illustrated recently by one of our readers named John....

I was just turned down for a home loan. My credit score is 799, my wife’s 804. We had $40,000.00 to put down, which was almost 30%. BUT! Our bank turned down our application! Why? They required us to have 6 months “operating expenses” in the bank after all closing costs were covered. They came up with an arbitrary number on their own, based on our bills and such. We had that amount and more on top of our closing monies. Then why were we denied the loan? Several thousand dollars were from “cash” and the bank required that “cash” be in the bank for at least 60 days or they wouldn’t consider it fluid funding. Needless to say we didn’t make the closing date and are hiring an attorney to avoid being sued (by the seller).

A reader named distressedinbham on another website had an even more frustrating experience trying to get a home loan modification....

I am self-employed, have been all my life and have owned a home for 30 years. When I started my Loan Modification process in August of 09 I WAS NOT behind on any payments. I sent full documentation, over 150 pages, with the things they needed to verify my income. I am now 2 payments behind and I am getting nowhere. They keep flipping me between Loss Mitigation and Imminent Default, back and fourth month end month out. I made a habit of calling every week, then every two weeks just to be sure all was moving forward. From the middle of November I was told my file was with the underwriter and it would only be 30-60 days. I began automatically updating my income verification, verification that I still resided at the property and an updated 4506-T every month. In the middle of April a rep finally told me I was not in the loan modification process. In fact, that I had been denied on March 2. Keep in mind, I'm talking to these people every 2 weeks. She did a financial interview and sent me a new packet so that I could start all over, resubmitting all the documentation yet again. She told me she was my Account Manager. I completed the packet, called with a question (2 weeks later - over a week to receive the packet and another few days to complete it and gather all my documents again) and learned that my "Account Manager" was on maternity leave and I now didn't have an account manager. Also, I was told that I had received the incorrect packet...it was the old version rather than the updated version. She asked me to fax four or five pieces of information in the hopes it would, quote, "jump start my file back into the process" and said she we send me another packet. That was mid April. Here we sit, 2-1/2 months later, I have still not received anything in writing about my rejection. And, though I've now had people tell me on three separate occasions that I would receive a new packet, it has yet to show up on my door step. I asked several times why my application was denied and the answer I finally got last week was that it was because I was DELIQUENT in my payments. Call me crazy but I thought that was the whole point??!! I almost hired a third party but am so hesitant to take that step. Every time I get on the phone with them it takes an hour out of my day and I am usually so upset I find it difficult to work, so I just don't call. I'm going to sit back and regroup and decide what I need to do next.

The truth is that scenes such as these are being repeated over and over again across the United States right now.

Scott Stern, the CEO of Lenders One, says that a lot has changed since 2007....

"Lending standards have tightened dramatically between 2007 and 2009."

In an attempt to avoid the mistakes of the housing bubble, the mortgage industry has now created a situation where standards are so tight that the entire industry is freezing up.

In May, sales of new homes in the United States dropped to the lowest level ever recorded. To be more exact, new home sales dropped 32.7 percent to a seasonally adjusted annual rate of 300,000.

Keep in mind that a "normal" level for new homes sales is an annual rate of about 800,000.

New homes have never sold this slowly ever since the U.S. Commerce Department began tracking this data back in 1963.

Now, a lot of the drop in new home sales has to do with other factors, but certainly the fact that people are having such a hard time getting approved for loans is playing a role.

If large numbers of qualified people are getting turned down for mortgages that is going to suck a lot of money out of the marketplace.

And without enough qualified buyers, the U.S. housing industry is simply not going to recover.

But it isn't just a lack of qualified buyers that is the problem.

The truth is that the U.S. real estate market is a complete and total disaster right now and there is every indication that things are going to get even worse.

So what does all of this mean?

It means that it is going to remain very difficult to sell homes.

It means that prices are going to continue to come down.

It means that real estate agents will continue to suffer and there will continue to be high unemployment in the construction industry.

In fact, every industry that is highly dependent on the U.S. housing market is likely to continue to feel a lot of pain for a long time to come.

So do you have a mortgage horror story to share? If so, please feel free to leave it in a comment below.....

Be Sociable, Share!

VegasBob

My guess is that when this guy’s bank checked with their accounting department, the accounting department said no, not because the guy doesn’t ‘qualify’ but because the bank is teetering on insolvency.
Something Wicked This Way Comes

What people fail to realize is that banking accounting rules suck. They allow banks to defer losses and not actualize them. Banks are woefully under capitalized and they are on life support. Trying to repair balance sheets with free money in low yielding bonds. Cash for clunkers, and the mortgage tax credit, were nothing other than an attempt to issue new debt= therefore increase fractional reserves and kick start lending. Banks are broke. They know it and they don’t want you to know it.

I didn’t fall for the BS tax credit. Why? Because prices are going to continue to drop. The quickest way to jump start this economy would be to force banks to actualize losses. You will make far more by waiting for housing prices to continue to decline as we work thru over supply and watch anemic interest rates deteriorate. Interest rates below 4% might be possible. That 8k is chump change if you can save 20 or 30% and get a rate one point lower.

Even our own government refuses to book Fannie and Freddie as the 400 billion dollar losers that they are. Stand pat boys and girls. There are at least 700k strategic defaults and gobs of ARM’s resetting in the next two years. Don’t fall for gov BS.
David

To those who were turned down by the parasite
bankers.
Take the money you would have used for a down payment and buy physical Gold or Silver bullion(take physical possession) along with Gold mining shares, rent for the next year or two.
After a year or two when housing prices have dropped further and Gold and Silver go up you will be much better off!
Ohio Loan Officer

I had a borrower come to me for a mortgage to purchase a new home. She had the down payment, 3 years on her job, 760 credit score.
She was declined— the bank said she did not have enough OPEN credit.
You see, she had attended a Dave Ramsey seminar at her church a couple of years ago. She believed in his ideas about getting out of debt. She had worked hard to pay off all of her credit accounts. She only had one credit card for emergencies that was left open and active. The bank said she needed 4 accounts to be open and active in the last year to qualify.
IT’S SO RIDICULOUS!
bob

Well heres a dirty little secret mortgage industry doesnt want you to know, if you have a home equity line of credit, forget ever refinancing your home. I tried many times to refinance it and couldnt because the heloc was in place. It was maxed out so, there was no issues. But nope they would’nt approve of the new loan. So, what did I do, just stopped payments and saved my money and left 1 year later. Did a deed in leiu of foreclosure. Maxed out my credit cards and then did a bankruptcy. Now have clean credit, good scores and will take advantage of the new lower home prices.
John2

Just wanted to vet my comment. I’m the “John” used as an example in the article. I indeed sought the advice of an attorney. We’ll probably forgo our earnest money so that the seller will let us out of the contract. You wanna know what legal force the seller’s attorney used against us? The fact that we didn’t have enough fluid assets to close the loan! This is the reason the bank turned us down! But we DID have the money in the bank (still do) it’s just that a portion of it was deposited as cash – so no one views that portion as legit. I guess they figure I robbed a bank or something…

Anyway, even without the cash, we displayed 5 months worth of their version of “operating expenses,” and still the bank did not bite. Be leery of any pre-approvals a bank might give. They did not stand by their own terms with me. They shafted me and I got hurt to the tune of $2,000.00 (earnest money, inspections, other fees).

Oh, well, maybe the price of that house will come down another $10,000.00 and I’ll make good in the end! Gotta be positive to make it in an “Economic Collapse.” Thanks!
Chris

I have been trying to work with a Wells Fargo for TWO YEARS to get my loan modified. I fell behind 3 months because I was out of work. I replaced my job and contacted them to re-start my payments. They put me in their Loan Mod program and, simultaneously, filed for foreclosure! I got a lawyer and he’s been submitting my paperwork to various people on their end every two months or so. Their business process is a mess and they don’t share info amongst themselves. On top of that, they’re adding their legal expenses to my principal. Legal expense that their bad process caused them to incur!

I have no idea when this will be done and what my final loan amount will be. Wish me luck.
kolchack

I have a better idea for potential buyers…rent. It is a terrible time to buy a house. Even if you don’t have any of the problems listed above, the chances are very good that you’ll be underwater in no time. Home prices nationwide are still way too high considering the horrible economy and high unemployment.

Rent for a couple of years and see what shakes out. It could be the wisest financial move you will ever make.
Eugene Waits

You can tell stories of horror until the world looks level, but IMO what is needed are stories of how to get around these fools!
Joe in JT

The second story writes “I’m self employed and have owned my home for 30 years. When I started my loan modification process I was not behind in any payments”.

Am I missing something here in the translation?

How on earth can you “own” your own home and at the same time be in a loan modification process? And the guys bragging “I was not late on any payments, yet”. Let me tell you something. You do NOT own your own home when you have a mortgage on it. You do not own your own home when you “re-mortgage” it.
The Bank Does!!
I have absolutely no sympathy for a guy who onced owned his own home outright, then uses it like an ATM machine so he and his wife can go on a Carnival Boat cruise.
Same thing goes for cars. Until that pink slip comes in the mail with your name on it, the bank owns your car. They just let you drive it for a while, until you miss 2 payments.

Bottom line is this. If you own your home, keep it. Never remortgage it, never. People work there whole lifes to own a home outright. Don’t let our governments propaganda tell you it’s okay to be constantly in debt, and buying things you don’t need.
http://survivaljoe.net/blog/ Survival Joe

The mortgage market ain’t pretty. I’m 5 years self-employed, so I know what it’s like to get qualified for a loan — basically impossible.

That said, I’ve enjoyed renting the last three years and watching home prices fall.

-SJ
http://healthjournalclub.blogspot.com/ Paul

I’ll tell you what I think. The people with money are paranoid about keeping their money and wish to eliminate threats. This is in part why they are so adamant about destroying the US through insane fiscal policy/wars/no borders etc., because traditionally the US was a place where the “middle class” thrived. Rather than this being perceived as a blessing that people could do well and improve their financial situation it was perceived as a threat. During Greenspan, the extension of “free credit” was given to draw as many into the bankers web as possible then the rug was pulled out from under them. This is an attempt to destroy the “landed” class, the gentleman class, the middle class in the same way that higher education costs increase 10-15% per year to attempt to destroy the college educated class. I had thought that once home prices had dropped sufficiently they would then skyrocket to attempt to keep all the “serfs” from owning land. This may still happen, but it appears that it might also be that there will just be so little bank lending towards property ownership that it has the same effect even as home prices continue to decline.

What was it Shakespeare said, “Neither a Borrower nor a Lender be” Amen to that.
al diro

check out this shocking REAL bank story. The banks would rather tear down NEW model homes rather than sell them at market price. This is how desperate the banks are to try and drive up housing prices. 2010 estimate is for another 7-13 MILLION homes to be foreclosed in America in the next 3-5 years.
Housing prices will collapse another 50%.
Save your cash. Invest in gold, silver.
2010 projection is in a couple of years more millionaires will be made with the next housing flips than ever before.
see this or search you tube for:
BAIL OUT BANK DEMOLISHES NEW MODEL HOMES- HOUSING MARKET COLLAPSE
http://www.youtube.com/watch?v=4Ilayp2ykts
http://www.loanonelender.com Loan One Lender

While it is unfortunate that so many unqualified people were able to obtain mortgages during the housing boom days it is also unfortunate that highly qualified people were denied mortgages later. I think that eventually the scales will even out in the middle so the right people will receive mortgages.
Joe in JT

Don’t overlook the fact that the TARP bailout fund was “suppose” to be used for lending not hoarding by the banksters.

If JFK were still alive he would say “those lyin baaastods.”
leo the lion

The greed, the mad dash for the buck. This may sound abnormal. I bought a home 30 years ago. I lived in it for 30 years. The mortgage is paid off. No equity loans.
What did I do wrong or right?
I did not sell my home during the swelling housing bubble. I could have for 10 times what its worth. And then I would have had to buy another home for 10 times what its worth.

Back in the bubble days the prices of homes were too high. But the Joes and the Marys were buying for a ridiculous high price. And to top it off in a year their home was worth 30 percent more than what they paid,,, so they took out an equity loan for the boat and motorcycle.

Now, Joe and Mary cant afford it. This wasnt only in the US but all over the world. This is a result of the working class thinking they were rich and wealthy.
Nick

Have to love Bank of America. Tried to get a loan from them in May to buy a home with 34% down payment. One week before closing they declined the loan. Ended up paying cash for the property.

In the process of getting a mortgage right now. The home appraised for over 10% higher than what we paid for the property. the only reason that I can get a loan on the new property is because the Bank is going to keep it in their inventory. It’s a one year arm at 4.375%.

The idiots at Fannie and Freddie won’t let a bank originate a loan for sale to them until 6 months after closing. The government has screwed up the entire mortgage market.
Michael

A reader recently submitted this horror story by email….

I have a horror story like no other that I need to forwarn other home owners about time is of the essence for me . Despite many home owners who have done everuthing right you still have banking giants brutually violating it’s customers and regualtors moving like they have rocks up their butts while Wallstreet is getting wealthier. I hope my story inspire other home others to speak up and no longer be shamed. Around 2005 I ontacted then Indy mac bank to refinance a property my mother had quit claimed her half to me. There was a second owner whose whereabouts were unknown. I advised the bank of this and askde if the other home owner had to participate. I was told no, I was told a lie. 2006 received written modification loan thru Indy mac bank for this same propeerty freezing my monthly payment to $896.00 per month included, taxes, insurance, and the mortgage thru the year 2034. 2009 recieved statement from now One West , fsb (the assigned successor of Indy mac after it’ collapsed )despite agreement doubling the monthly amount to $1,750.00 per month. 2009 foreclosure papers arrived suing me over the non agrred amount of $1,750.00. I kept my end of the bargain and paid the $896.00. The bank was so desperate to get what was not theirs it named in it’s law suit my mother and the other propety owner (the one who never signe away his rights, so the refinance shuould have never happened)My mother who had nothing at all to do with this loan and the bank knew it. Remember at teh time of refinance the bank paid off the prior mortgage holder. Both parties names were on all relevant paperwork to a refinance. 2009 discovered One West FSb, nor Indy mac owned the loan. Deutsche National Bank and Trust owned this loan. Never heard of this people the entire 5 years I owned the loan. Well then they were silent partners who okd the modification 5 years earlier. 2010 lock box placed on propety. Bank named it self judge and jury. No judgment has been rendered agasint me. I did not walk away from the property I was in the middle of repairing it due to vandals. I have materials I can’t get to, renters loss, and a loss on income. Again the courts have not ruled against me. I have ahad to hire an attorney . fee;s . The bank has loaded my acount with astronomical fees to make even more money when the bank should not be foreclosing on teh home. Now that that economy is sour grapes lenders are stepping on the roights of individuals.
Pangea

Real estate was great during the boom. But that is over! Why people still believe in the so-called “owning a home” concept is beyond me. Mainly because, if it’s financed, you don’t own it. If you don’t believe that, quit making payments and you’ll find out you don’t own it. But seriously, we sold and are renting a much nicer home, for much less than a mortgage would be on such property. Remember, buy low, sell high, and life will be good.
Hu Ruiqiang

At present,the housing market in the U.S. and China is roughly exploring very difficult period. People in China also getting a loan is hard,thanking for the goverment’s code.
bruce

If everyone quit paying at the same time, maybe we could influence the bankers. Everyone should stop all payment to all banks.
adele

Our story started when we wanted to make some improvements to our home. We own three properties, our primary home, a second vacation home and a co-op that is a rental property. The only property with a mortgage is the vacation home which is in the last year of payments and we had never missed a payment. The total value of the three properties is 900K.

We are retired and live on dividend income from investments and IRA’s worth over 2.5 million. Not wanting to touch and unbalance our portfolio, we requested a 50K HELOC loan from the lender that holds the mortgage on the florida loan. My credit score is 780. My husbands is 740.

We were denied because we our “obligations were greater than our income” and that we could not prove income.!!!???? So there you have it, even the moderately well off can not get a nickle from the bank.

PS. we were so annoyed we paid off the last bit of the mortgage, $4200.00 and told Citibank they would never hear from us again.
http://www.hardworkingmortgageguy.com Indy Mortgage

   Being a responsible grownup is not always as easy as you think it would be.
In 2001 I began a career as a professional musician. I rented places to live on and off with other musicians in Seattle, and had relatively low monthly expenses. I steadily became more and more successful eventually earning significantly more than I was spending each month. Growing up rurally on the east coast, every responsible adult i knew was a homeowner, so naturally for me, the next step was to jump right into home ownership. This was compounded by the prevailing thought at that time, that property was the BEST investment one could make.
   ”Buy a house!” was all I ever heard, so I did. I bought a home. I found a new construction in a nice suburb. I had “good” agent who explained how everything worked, and that property in this area had increased in value 18% each year for the last few years consistently. The purchase price was $339,000 I put down 5% and had 80% loan through BOA, and a 15% loan through Chase bank. My payment was $2000 a month. I collected $750 a month in rent and paid the rest myself.   What could go wrong? It would certainly be worth tens of thousands more in the near future. At which time I could move fully in and start a family, or take my investment profit and buy an even better home if I wished.
   As you must have guessed, things DID go sideways. First of all the house value dropped to just over $200,000. Secondly, to my surprise, my income did not continue to grow year after year. My business was scaled back, and my income as a result. I was still out traveling for work most of the year and my roommates eventually left. So I was to forced to rent it fully out for only $1500 a month, and I no longer had a place to live.
   It doesn’t take long to figure out that I suddenly had the very opposite of a good investment. I was unable to continue to pay and make the difference, and no changes to the situation were foreseeable in the future.
   That surprising thing is that I haven’t made a payment on my now vacant property in over 2 years. It’s still not foreclosed. It amazes me that this is even possible, and I am thankfully that I don’t think I will literally have to pay $339,000 to the people I borrowed it from. On the other hand, my credit is ruined, and I may have to settle and write a check for several thousand dollars at some point to my second mortgage. There is a ton of hassle, phone calls, forms, and stress to deal with, but perhaps the worst thing is the shame of failing.
  I really believed that I was not greedy and just “doing the right thing” and be a responsible adult. I made a bunch of money as a single guy in a rock band, and all I blew all my money in a short time, except not on the fun irresponsible things one would expect. Instead irresponsibly blew it on a down payment, interest, escrow, a nice fence and back yard, and countless other things that I no longer have. I wish I had learned an expensive lesson at least, but I’m afraid I still wouldn’t know what to do with money if I had it.