Get Your Mortgage Application Through the Approval Process

Banks are supposed to be making mortgage loans again, right? So anyone with good credit, sufficient income, and home equity should be able to get a sweet deal on a low-interest-rate mortgage right now? Not from what I'm seeing.

Joe, who is trying to refinance his ARM, recently wrote with this update: "I have been trying to get through this process since October of last year with Wachovia. ... I am trying to get 30-year fixed, and I gave them 2008 tax returns, 3 pay statements, bank statements and had two appraisals and a letter from my employer verifying I am currently employed. ... NOW they are asking that my employer write a letter that says I will have a job for the next 3 years!!!"

You've got to be kidding me! Anyone with a brain cell knows that no employer will write such a letter.

Another recent example is from a retiree with significant pension income, a multi-million dollar portfolio, and a current 30-year fixed loan for about $400k on a property worth twice that. He's seeking to refinance to a ten-year fixed rate mortgage at 4.25% with Chase. His application has been in process for almost four months. What's the hold up? The newest item on the bank's list is a request for a completed HOA Condo Certification Questionnaire. Because it's a two-unit house, the property is structured as a condominium. Each unit could be individually owned, so Chase is sticking to its procedures. If it's a condo, there must be a home owners association and they will need to see audited financials. Another ridiculous hold up, if you ask me.

I am not suggesting that banks look past good underwriting procedures and make bad loans -- that's what got them (and all of us) into the current mess. But banks should have a reasonable underwriting process. It appears to me that banks are saying that they want to make loans, but their actions are saying the opposite. My sense is that with interest rates so low, and likely to head higher, banks are reluctant to make loans. It's more profitable for them if they wait for rates to go up again. Fellow bloggers, we need to turn up the spotlight on this problem!

So what's a refinancing strategy that works in the meantime? My friend Tom Weisman, a grizzled mortgage pro at Prime Lending, says that instead of trying to refinance directly with a big bank, folks should seek their mortgage from a bank that can underwrite, originate, and then sell the mortgage to the big banks. He says the loans he's working on are getting done in about two months. Why is this? I suspect it has something to do with an originating bank being on the hook to take back the loan in the case of shoddy underwriting, or if it fails within a year. This makes the big banks more comfortable with buying these loans, rather than making them directly.

Ray Martin

View all articles by Ray Martin on CBS MoneyWatch»
Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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