One couple’s tale of refi rejection

[DWCAP]

Something is missing from that story. I dont know what it is, but that cant be the whole story. My guess is that there is alot of other debt in there that isnt disclosed. They only disclose the assets side of the balance sheet, what about the debts side? (morgages on those rentals, cc, auto loans…) If they owe alot of money already, it is a risky loan even if they have a house that isnt underwater.

Plus, they can almost pay off the stupid thing with savings. Why do two people in their 60’s want to extend their payments into their 90’s? To save a few bucks on the interest rate reduction? They’ll pay alot more long term than any interest rate reduction will give them. (I am assuming that this ‘savy’ person got a rate back in 2003, or so an isnt carrying something from the 80’s or worse)

[sdrealtor]

I’m far from a mortgage guy but what I see missing is earned income. The banks want to see actual earned income coming in not passive income or assets.

Why they want to do it is cash flow. Income down (temporarily they hope) and they want to hold onto what assets they have in case the unemployment picture goes longer than they hope. Rates are lower so why not take advantage of tehm if they can. It’s free money to them if they can.

[sdrealtor]

I’m far from a mortgage guy but what I see missing is earned income. The banks want to see actual earned income coming in not passive income or assets.

Why they want to do it is cash flow. Income down (temporarily they hope) and they want to hold onto what assets they have in case the unemployment picture goes longer than they hope. Rates are lower so why not take advantage of tehm if they can. It’s free money to them if they can.

[sdrealtor]

I’m far from a mortgage guy but what I see missing is earned income. The banks want to see actual earned income coming in not passive income or assets.

Why they want to do it is cash flow. Income down (temporarily they hope) and they want to hold onto what assets they have in case the unemployment picture goes longer than they hope. Rates are lower so why not take advantage of tehm if they can. It’s free money to them if they can.

[sdrealtor]

I’m far from a mortgage guy but what I see missing is earned income. The banks want to see actual earned income coming in not passive income or assets.

Why they want to do it is cash flow. Income down (temporarily they hope) and they want to hold onto what assets they have in case the unemployment picture goes longer than they hope. Rates are lower so why not take advantage of tehm if they can. It’s free money to them if they can.

[sdrealtor]

I’m far from a mortgage guy but what I see missing is earned income. The banks want to see actual earned income coming in not passive income or assets.

Why they want to do it is cash flow. Income down (temporarily they hope) and they want to hold onto what assets they have in case the unemployment picture goes longer than they hope. Rates are lower so why not take advantage of tehm if they can. It’s free money to them if they can.

[briansd1]

[quote=EconProf]I’ve never understood why banks put so much stress on current income, and so little on net worth. It takes discipline to save and accumulate assets, which ought to be the best indicator of default probability.
I’d suggest this couple keep on looking to refinance. Lenders cannot all be that stupid.[/quote]

Because net worth is useless to the bank. The cannot seize the net worth if the borrower decides to walk.

The law is either or. For example, if the borrower deposits $10,000 with BofA which gives them a mortgage. If the bank seizes the $10,000 deposit for non-payment on the mortgage, they forfeit the right to foreclose.

It’s been litigated before and it’s well established in case law.

The bank cannot go after the assets. Their only recourse is foreclosure.

[briansd1]

[quote=EconProf]I’ve never understood why banks put so much stress on current income, and so little on net worth. It takes discipline to save and accumulate assets, which ought to be the best indicator of default probability.
I’d suggest this couple keep on looking to refinance. Lenders cannot all be that stupid.[/quote]

Because net worth is useless to the bank. The cannot seize the net worth if the borrower decides to walk.

The law is either or. For example, if the borrower deposits $10,000 with BofA which gives them a mortgage. If the bank seizes the $10,000 deposit for non-payment on the mortgage, they forfeit the right to foreclose.

It’s been litigated before and it’s well established in case law.

The bank cannot go after the assets. Their only recourse is foreclosure.

[briansd1]

[quote=EconProf]I’ve never understood why banks put so much stress on current income, and so little on net worth. It takes discipline to save and accumulate assets, which ought to be the best indicator of default probability.
I’d suggest this couple keep on looking to refinance. Lenders cannot all be that stupid.[/quote]

Because net worth is useless to the bank. The cannot seize the net worth if the borrower decides to walk.

The law is either or. For example, if the borrower deposits $10,000 with BofA which gives them a mortgage. If the bank seizes the $10,000 deposit for non-payment on the mortgage, they forfeit the right to foreclose.

It’s been litigated before and it’s well established in case law.

The bank cannot go after the assets. Their only recourse is foreclosure.

[briansd1]

[quote=EconProf]I’ve never understood why banks put so much stress on current income, and so little on net worth. It takes discipline to save and accumulate assets, which ought to be the best indicator of default probability.
I’d suggest this couple keep on looking to refinance. Lenders cannot all be that stupid.[/quote]

Because net worth is useless to the bank. The cannot seize the net worth if the borrower decides to walk.

The law is either or. For example, if the borrower deposits $10,000 with BofA which gives them a mortgage. If the bank seizes the $10,000 deposit for non-payment on the mortgage, they forfeit the right to foreclose.

It’s been litigated before and it’s well established in case law.

The bank cannot go after the assets. Their only recourse is foreclosure.

[briansd1]

[quote=EconProf]I’ve never understood why banks put so much stress on current income, and so little on net worth. It takes discipline to save and accumulate assets, which ought to be the best indicator of default probability.
I’d suggest this couple keep on looking to refinance. Lenders cannot all be that stupid.[/quote]

Because net worth is useless to the bank. The cannot seize the net worth if the borrower decides to walk.

The law is either or. For example, if the borrower deposits $10,000 with BofA which gives them a mortgage. If the bank seizes the $10,000 deposit for non-payment on the mortgage, they forfeit the right to foreclose.

It’s been litigated before and it’s well established in case law.

The bank cannot go after the assets. Their only recourse is foreclosure.

[EconProf]

Permit me to elaborate. A person with a high income but zero net worth–let’s say a hot-shot salesman with a few years of good income, but lots of credit card debt could easily get a loan. Someone with the same credit score, lower income but good net worth from a history of spending less than their income for many years would be less likely to get a bank loan.
Yet the salesman’s income could drop for a variety of reasons while the frugal guy could handle adversity better–has liquidity, spends modestly, etc. Where’s the justice?

[EconProf]

Permit me to elaborate. A person with a high income but zero net worth–let’s say a hot-shot salesman with a few years of good income, but lots of credit card debt could easily get a loan. Someone with the same credit score, lower income but good net worth from a history of spending less than their income for many years would be less likely to get a bank loan.
Yet the salesman’s income could drop for a variety of reasons while the frugal guy could handle adversity better–has liquidity, spends modestly, etc. Where’s the justice?

[EconProf]

Permit me to elaborate. A person with a high income but zero net worth–let’s say a hot-shot salesman with a few years of good income, but lots of credit card debt could easily get a loan. Someone with the same credit score, lower income but good net worth from a history of spending less than their income for many years would be less likely to get a bank loan.
Yet the salesman’s income could drop for a variety of reasons while the frugal guy could handle adversity better–has liquidity, spends modestly, etc. Where’s the justice?

[EconProf]

Permit me to elaborate. A person with a high income but zero net worth–let’s say a hot-shot salesman with a few years of good income, but lots of credit card debt could easily get a loan. Someone with the same credit score, lower income but good net worth from a history of spending less than their income for many years would be less likely to get a bank loan.
Yet the salesman’s income could drop for a variety of reasons while the frugal guy could handle adversity better–has liquidity, spends modestly, etc. Where’s the justice?

[Author]

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