As most of you know, the Cornerstone Mother Ship resides in the Land of the Sun in glorious Scottsdale, Ariz. And for those of you in colder climates, we are always ready to greet you here at our offices if you need a break from the snow. Up until this spring, I had actually worked remotely from my Kansas “office.” It wasn’t unusual for me to watch house prices decline in the greater Phoenix area at the same inverse rate as snow increased outside my windows on the prairies in Kansas. After much internal conflict, I finally decided that I had to look for a house closer to work and higher temps.
This story is about one man’s journey to buy a house in the post “financial meltdown” from the consumer’s viewpoint and to see if greater conclusions can be drawn.
I started looking for a house in Phoenix in February of this year. I chose a Realtor based on recommendations from my friends, and she turned out to be a real sweetheart. She gave me access to the MLS listings, I scheduled a trip to Phoenix, and right before the trip I picked out 20 houses under $150k that I wanted to see. My thinking was that I would look for a bargain since I was keeping my home in Kansas. So I show up in Phoenix, meet the Realtor and run into the first problem. All of the houses are gone in the two days between the time I picked them and I met the Realtor. Apparently if you don’t start in the $175k and up range, the houses are all going to the cash investors. So then I notice that every listing, no matter the price, is approximately 50% of its one time high. I decide I may just as well go up the property ladder, right? After all, this is still America. Land of the free (and easy credit). I raise the limit to $300k and all of a sudden I can go shopping for houses.
I schedule another trip, and after three harrowing days of traveling in my Realtor’s Chevy Suburban to look at houses, we pick one. I think all Realtors drive like Bonnie and Clyde leaving their local banking establishment after an emergency withdrawal. This one also added in looking at MLS listings while driving, working two phones at the same time and making U-turns as desired. It didn’t help that we had to dodge a plethora of Canadians who are trying to dominate the local real estate market. So we survived that, put in an offer on the house at $10k under its listing price of $230k, have the offer accepted, and then the “stuff” that is the heart of this story begins.
I decide I am going to pay 20% down for the house, get a loan and take advantage of the dirt cheap rates (3.75% for a 15 year fixed at the time). So I have a bank in mind to make the loan. The Realtor gets a puzzled look on her face and says she really isn’t sure how to do that. All sales in this area go through brokers/loan agents. She had been in the business forever and never worked with a bank. And of course she has a broker she “works with.” And a handyman. And an inspector. And an insurance agent. And an appraiser. I mean this is serious one-stop shopping. So I am like, well if they can meet the same loan rates as my bank and it will speed up the process, no problem. Maybe that was a bad decision. I fill out the loan docs, put down my financials, send them in and get a quick response. My loan is going to be approved subject to “additional documentation.” Oh, did I tell you this was a Fannie Mae foreclosure? That means I have to use their selected title company to get discounted title fees.
Then I start to get bombarded with requests for information from the lender. Not the typical W2s, statements, etc. I mean really creative documents. Like they want a check stub proving that I paid my 2011 taxes when it is only February of 2011. Then they wanted a W4 that showed I had moved to Arizona. Which brings up a great question: who is going to relocate to another state before they buy a house? They want a copy of every paycheck and a bank statement every week from the loan app until closing. Did I mention that my bank doesn’t give out weekly bank statements? And then there are my personal favorites: the documents they didn’t ask for, which include any of my retirement accounts, deposit accounts, or documentation that I owned another house.
So being in banking since the ’80s, at some point I have to ask the broker/loan agent what is up with all the crazy documentation requests? With my credit rating, down payment and assets, why am I being asked to do this? The responses are somewhat revealing. Many of these were related to me with lungs wide open:
So I stay the course through more adversity than you can imagine and close on the house. I take possession and note that my house has been sold to Bank of America before the first week is out. I am now making payments to someone I don’t know and never will see and would never have gone to for a loan.
And then everyone wonders why real estate is dragging. It’s not the supply and demand. There is plenty of supply, and while our capitalistic society isn’t perfect, I think there is still demand strong enough for a buyer and a seller to get together. It’s this stupid lending process. A National Association of Realtors’ survey found 15% of real estate agents said their last contract didn’t close because the buyer couldn’t get a loan. If one contract doesn’t close, it often drags another contract or more down with it. The Federal Reserve is now saying that lending is getting too tough. But from my point of view it wasn’t the traditional lending standards, i.e. loan to value and ability to pay, that were too tough. It was the lending process. No one ever questioned my ability to pay. They were questioning my ability to PROVE I COULD PAY to the person they were guessing they would be selling the loan to.
Other observations from the buying process:
Fee Generation
Loan Doc Processing
The moral of the story is that I’m telling my friends to go to their corner bank for a loan. Gonzo lenders and Gonzo underwriters out there need to be smarter than the people I dealt with. Lenders and underwriters who are this paranoid that a loan is going to be bought back probably shouldn’t be selling it in the first place. Go back to the good old days and keep the loans on the books and rake in the servicing fees.
We have got to get trust back into the process. If we are going to ask for deposits on a trust basis, but do loans on a total adversarial basis, then our industry isn’t going to be the same as the one I grew up in.
You can’t make this stuff up. Let’s not be so sure that our customers don’t have similar complaints. We can do better as an industry.
Have a very Happy Thanksgiving. For what it’s worth, I love my new home.
-br
Congratulations on getting through the process to buy your second home.
I just had as harrowing a process with buying a second home in Florida. I tied going to the local bank but could not get a reasonable rate. Using the broker that my agent suggested, we got 3.75 on a 30 year loan. While I am delighted with the rate, the fees were not as delightful and the amount of paperwork requested was dumbfounding, certified copies of our passports, copies of statements and weekly updates, every page of our last two years tax returns (do you know how many pages this meant we scanned for just that request?), endless copies of the HUD1 reprinted with corrections where we were asked to backdate (which I would not accomodate) and 4 requests for updates/changes to the contract for the home. This wasn’t even a foreclosure! With excellent credit ourselves we couldn’t imagine how difficult this process must be for folks with less-than-stellar credit.
And, thanks to my realtor, my personal information and all the new home sale information was emailed to someone with a similar name and email address. I just hope it is someone honest.
So, having used a wonderful mortgage broker before, I know there is value in brokers, but why do banks force folks through them to get good deals!!!
I’m going through this in Phoenix right now! I got loan approval, but with some conditions, ie, a few more documents. Last Friday, I took in a stack almost 3″ thick, then today was told the appraisal, which was promised last Friday, was not done because they were having a hard time coming up with comps. In frustration, I said, “Who is this appraiser anyway?” The serious answer, “We don’t know, it’s randomly selected from an outside service. We’ll see that info when the completed appraisal comes in.” Oh for the good old days, huh?
Amen! Did you send this to our congressmen?
No I did not, but that is an excellent idea. Will do so right away.
Sounds like buying a home hasn’t changed all that much in the last 15 years IF you are using the “loan broker” that your real estate agent wants you to use. I had the same experience prior to the bubble – minus the “prove that you’re already living in the house that you want to buy” nonsense.
One of the latest developments that has come out of all of the regulatory over-reaction is that many small, local banks have thrown their hands up in frustration over the constantly changing disclosure and underwriting requirements, not to mention the over-bearing compliance exams with examiners trying to prove they will “ensure complete compliance”, and they are simply getting out of the home loan market altogether.
The credit unions, bless their heart, are still in the game, mainly because the NCUA is not as a-retentive as the other agencies over any minor mistake on a disclosure.
But this leaves the market wide open for the broker-lenders, the same folks that brought us into the mess in the first place, and there is really is no effective oversight on what they do. I am constantly amazed at what a broker has told a bank or credit union on what can or cannot be done.
The bottom line is – we need the CFPB to cut through all of the red tape c-rap and make a pronouncement from on-high – that banks and credit unions, under a certain asset size, that make under a certain number of loans each year, will be allowed a more streamlined approach to disclosures and appraisal procedures. The caveat should be that the streamlined approach can ONLY be used for direct lending – no broker involvement WHATSOEVER.
Unfortunately, I don’t see anything like that happening any time soon, or ever. And that is a shame. We have essentially taken our local banks out of our local housing markets.
Nicely done!
Bob,
Very relevent article. I too am going thru a similar process right now, but only trying to refi. The lender I found insists that all of this documentation is to scare you from actually going thru with it. It has been strange how I haven’t qualified for all of the great “programs” from the government for “free refi”, “lower your payments”, “special rates”. Those programs seem to be for “other” people even though I thought I was one of them. You know, the middleclass with house and 2 kids in private school and loads in credit card debt who gets to the end of the month before the calendar.
A couple of differences here in Georgia – the state with the largest number of bank failures – I could pick my title company. Also, no more appraisers in the pocket. The lendor goes thru an appraisal mgmt company who then subs out the work – and adds $30 for their effort. That way the appraiser is kept at arms length from the lender so no influence there. wink wink.
Keep up the good work, maybe soon the banks, or private lendors who will begin to take the business away from the banks, will see the light and get things rolling again.
PS. I didn’t know there was so much snow in Kansas. Dorothy never mentioned snow….
Mistake #1: Using a Mortgage Loan Broker!
Mistake #2: Putting your full faith in the real estate agent and letting her “recommend” people to you.
Mistake #3: Thinking that buying a foreclosure would be anything remotely near a regular buying process!
Glad you like the home, though! Hope you can relate to a Christmas with no snow!!
Best,
Jarod
Thoroughly enjoyed reading your chaotic road to home ownership in Arizona. I’ll share with my husband, a realtor who will say several amen’s, etc. You’re right. Banks need to provide much better service than this.
Glad you love your new home!
Bob, Your entertaining but sad story reads like you have been to two county fairs and a goat whoopin. You know what they say in Arkansas: “You don’t know whats in the pickle barrel till you take the lid off”. When we make our move back to Florida, you can bet I won’t be using a Mortgage Loan Broker and I will think twice about buying a foreclosure. Thanks for sharing your journey. Enjoy your new home and freedom from that white icey stuff that floats down from the heavens. Happy Holidays
Wow now that’s a daunting process. My answer – credit unions will always do it better!
Bob I read your story with interest this morning as my wife and I have a house in the Phoenix area and have a similar story. When I saw the picture of the local Bank I said that is our Bank. Go to our website Mahnomenbank.com and you will see the same picture. Thank You
Hi Bob,
Great read! I linked to the article in the Independent Community Bankers of MN member newsletter.
One member got an especially good kick out of it. His bank is the one pictured in that last image! It’s the First National Bank in Mahnomen, and that clock you see in the image has it’s own little story
For a small slice of community bank history, it’s worth a read: http://www.mahnomenbank.com/aboutus
Best,
Paul
Paul, thanks for the link! I just had an exchange with Pete, the ICB-MN member you reference, who pointed out that I had used a picture of his bank in the post for Bob’s article. Turns out it was one of those “easier to get forgiveness than permission” circumstances. Pete was good enough to grant me leniency to leave the photo up – so to all the good folks at First National Bank in Mahnomen – thanks, and Gonzo on! We hope our readers enjoy the trip down memory lane.
-Cate Pitts, Editor
I went through something very similar in the Detroit area. There are so many homes for sale that I had to put an offer on the house hours after it was put on MLS. I also took my agent’s advice and went through a broker who needed to know where literally every penny in my savings and checking accounts came from. I had recently changed from a bank to a credit union and had to show every piece of documentation that I moved money and all my retirement assets. I also had to give them four updates on activity in my checking account. I was so scared to use my checking account for daily purchases, I borrowed money from my family until closing and paid them back afterwards. All for a loan under $100K, I have perfect credit, no break in employment and putting over 20% down. Never again will I go through a broker — credit unions all the way.