The Current Mortgage Environment

There’s only so many moves on a checkerboard, once you’ve learned them that’s it. It’s a straightforward game. The mortgage-lending environment is quite similar and straightforward; easy to understand and extremely limited in nuance borrowing. The sophisticated game of chess in lending is gone. There is no creativity allowed in the application which restricts lenders to work with only the unblemished and perfect people of FICO, W2 employment and 20% down payment. There are little to no exceptions, except for the FHA with small down payments and grants for those who qualify.

Usually all new laws designed to help cure a problem only make it worse. That may be an over generalization, but most laws and regulations are over-reacting to a problem. And that generally means everyone suffers. The Treasury prints more money, but none of it is circulated. Mortgage lending gets tight and conventional 15 and 30-year mortgages are the norm. ARMs, Interest only, and 40-year mortgages for the most part are gone.

Today you need excellent credit, W2 employment and a large down payment. There’s nothing wrong with that, but it also had unforeseen consequences for the wealthy and the self employed. The wealthy who don’t have earned income like a W2 employee or whose assets are illiquid are often turned down for a mortgage. These are the very people banks and lending institutions want to lend to, but Dodd Frank ties their hands and these constraints slow commerce. The self-employed are not treated like business owners but more like work-at-home hobbyists with unpredictable income. Thousands of dollars in 1099s are devalued against a W2 minimum wage earner.

The mortgages of today are fairly straightforward with the exception of (HECMs) Home Equity Conversion Mortgage for seniors over age 62. You can use HECM for tax-free income, to purchase a home with a discounted down payment and to create an appreciating equity line of credit. With the exception of HECM, mortgage lending is for the few that meet the requirements. Is that what Dodd Frank intended?