Via Jay Vorhees, CA Bureau of Real Estate—We financed a purchase for a professional baseball player last year, and it was a mortifying experience for one of our Processors. This is why…
The borrower made close to $4 million per year and could have paid cash for the house several times over. He was only seeking financing at the behest of his financial planners. And, despite his 3% debt ratios and massive pool of assets, we still had to beat the snot out of him for inane conditions.
In particular, we needed rent-ratings for all of the properties he rented over the previous few years while he moved from team to team. Our Processor had to call all of his landlords including another pro-ball player who was at Disneyland with his family at the time (interesting aside: the guy was super nice).
Anyway – this is just one example of what takes place all too often nowadays in the world of mortgages.
Here are a few reasons why we must chase crazy conditions that have no bearing on ability to repay:
1. Loan Salability. Mortgage banks make money when they re-sell loans on the secondary market. If, however, every “inane” condition is not met, investors will not buy the loans. A non-salable loan can cost hundreds of thousands of dollars.
2. Secondary Market Pools. When investors or aggregators buy mortgages, they put them in pools and resell them as mortgage backed securities. When they do so, they effectively must promise that all the mortgages in the pools have all their conditions met. If not, they face fines, devaluations, losses, etc.
3. Regulators. Regulators scrutinize mortgages at every level with random audits. If they find that conditions have not been meet, they can slap large fines on lenders, note-holders, etc. They can also render mortgages invalid, allowing borrowers to not pay.
Anyway – inane conditions are simply part of today’s mortgage world. They are not the result of a single underwriter being vindictive or nasty (what too many borrowers think). The risks are simply too huge to not satisfy them all.
Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646