- The Washington Times - Friday, March 13, 2009

Q. We have just settled on the purchase of a second home. We bought a larger house in Alexandria around the corner from our current residence, which is under contract. The sellers are our friends, and there was no real estate agent involved. Our transaction was relatively complicated. The contract price was $800,000. We obtained a 30-year fixed-rate loan of $417,000 and a second trust of $143,000 with a 30 percent down payment. Our down payment came from a savings account and a loan secured against a condo we own in Ocean City, Md. –- We had to jump through hoop after hoop to get the loan closed. In fact, our mortgage broker told us that the first lender declined the loan because the house we’re buying is too close to the house we’re selling. They said it constituted “two primary residences.” All in all, we got the deal done. I am amazed at how hard it was to get a mortgage. Our down payment was huge, and we have great income and great credit. Please tell me that this is not going to get worse.

A. Unfortunately, what you experienced is fairly common. I have written about borrowers who must satisfy frivolous conditions that have little (or nothing) to do with the determination of their creditworthiness.

My explanation may appear to be glib but it’s probably reasonable. During the renegade mortgage days of the first half of this decade, anyone could get approved for a mortgage. Down payment amount, credit score and income verification simply wasn’t a concern. Mortgage investors jacked up the interest rates and created what became a colossal subprime-mortgage market. Fannie Mae and Freddie Mac hopped on the bandwagon by introducing their “Alt-A” mortgage products, a diluted version of subprime products.

While the mortgage freight train was charging along at full speed, I am proud to say that my company never made a subprime loan. It was pretty obvious the freight train was on a course to derail.

Your situation is simple physics. For every action, there is a reaction. Think of the “easy mortgage money” days as a pendulum swinging widely in one direction. Since the collapse of the mortgage industry, the pendulum has swung just as wide in the other direction. Loans are harder to get, and underwriters have become completely unreasonable.

Eventually, the pendulum will swing less in each direction and find a middle ground that balances prudent underwriting and common sense.

The first lender that declined your loan is a good example of the paranoia that is rampant in the mortgage business today. On the other hand, it’s good news that your mortgage broker was able to put your deal together and get it approved and closed. I can tell you from experience that we are faced with some unreasonable underwriters these days.

Hopefully, common sense will eventually prevail. Folks with good income, savings and credit will be able to obtain competitive loans without being dragged through the mud. Folks who, for whatever the reason, are clearly not ready to handle a big mortgage will not have a tempting carrot dangling in front of their noses.

Henry Savage is president of PMC Mortgage in Alexandria. E-mail him at [email protected]

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