- The Washington Times - Friday, March 14, 2008

A couple of weeks ago, I reported a story on a married couple who decided to live apart for three

years to take advantage of an excellent job opportunity for the husband. It seems he was offered a lucrative three-year contract from a large Northern Virginia employer. His wife remained where they live in San Diego, where she has a good job.

The husband accepted the Virginia job and secured a contract to purchase a town house in Fairfax County.

Despite a good down payment plus good salary and credit, the California lender refused to approve the mortgage loan because it suspected the couple was getting divorced.

I replied to the reader that I thought the lender’s position was not just unreasonable but possibly discriminatory. I advised the borrower to dump his lender and try another company recommended by a reliable source.

I’m happy to report that the man took my advice and was able to secure the financing he wanted from another mortgage company.

In my column, I indicated that the unreasonable position taken by the California mortgage company could very well be indicative of lenders’ overreaction to the mortgage meltdown. Although the explosive growth of the subprime mortgage market and easy credit guidelines is surely to blame for the current credit crunch, it’s obvious that lenders are overreacting, making mortgage money artificially expensive and harder to obtain.

Here’s another story. A giant international bank with a huge mortgage presence in America recently declined a refinancing mortgage application.

The loan amount is $320,000. The property appraised for $800,000, creating a very low loan-to-value ratio of 40 percent — something very desirable from a lender’s standpoint.

The borrower is a salaried professional with excellent job stability who makes $120,000 a year. His credit score is nearly 800, which is considered nearly perfect. He has no other debt.

So why would the lender reject the loan application? Well, the property is on several acres in the Virginia countryside. It even has a stable and riding ring on the premises. It seems the underwriter determined that the property is being used as a “hobby farm.”

What, you may ask, is a hobby farm? It’s a small farm that is maintained for fun and not as a primary source of income. Apparently, because the property has a stable and riding ring, it is considered a hobby farm.

Fair enough. So what? Well, apparently this is unacceptable collateral to the lender, regardless of the appraised value.

The lender blames Fannie Mae and the Federal Home Loan Mortgage Corp. (Freddie Mac), the two government-sponsored enterprises that buy and package mortgage loans from banks. They don’t like hobby farms, the lender says.

Officials at Fannie Mae did not respond to a request for comment.

The borrower asked why having his property classified as a hobby farm would make the loan riskier to the lender. After all, he has a huge salary, perfect credit and $480,000 in equity that he would risk losing in the event of a default.

He didn’t get a straight answer. Hobby farms are ineligible. Period.

What’s the lesson here? When seeking mortgage financing, American consumers should be extra diligent in pressing for a quick, firm approval.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail (henrysavage@pmcmortgage.com).

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