'Part of the problem is overcorrections by some banks.'
It’s a mortgage problem that is likely to intensify as home-owning baby boomers by the millions shift into retirement: Though they may have significant financial assets tucked away in retirement accounts, their diminished monthly incomes may not be sufficient to meet some lenders’ hyper-strict underwriting rules.
Jim Eberle of McLean, Va., found this out the hard way when he applied to refinance his mortgage. After spending much of his career working for banking-industry trade associations in Washington, Eberle, 68, decided to take advantage of this spring’s unprecedented low interest rates with a 2.89 percent adjustable-rate 30-year loan offered by a large Midwestern bank.
To his utter shock, Eberle was rejected – the first time in 45 years of homeownership and eight different home loans. The reason for the turndown: insufficient income. “To get rejected was incredible,” Eberle said in an interview, because based on the extensive documentation he provided the bank, he looked highly qualified. He had substantial checking, savings and 401(k) holdings and a net worth he describes as “in seven figures.” The appraisal the bank did on his house showed it to be worth $664,700 – more than double the $322,000 refi he was seeking. His credit score, according to TransUnion, was 826, indicating minimal risk of default.
Yet the bank “told me it could not make the loan because, even though I have sufficient (liquid) assets and a high credit score,” his monthly Social Security payments, bank deposits, checking accounts and 401(k) plan “were not enough.”
How commonplace is Eberle’s experience? Conversations with mortgage lenders and analysts suggest it is happening more frequently, thanks to some large banks ratcheting up their underwriting standards so tightly that the old joke – they’ll only lend to people who don’t really need the money – is beginning to resemble reality for some borrowers.
Eberle says he was willing to pull out funds from his checking and banking deposits and set them aside to make up any perceived monthly income shortfalls. “I was willing to do whatever it took,” he said. But the bank still said no.
Mortgage market experts, such as Dennis C. Smith, co-owner of Stratis Financial in Huntington Beach, Calif., are not surprised at Eberle’s experience. Smith had a recent client – a physician seeking a $350,000 loan with $2.5 million in bank accounts – who was rejected by one lender because the deposits, which were proceeds from an inheritance, had been in his account for just eight months. This was too short a time period to satisfy the bank’s pristine and unyielding standard.