We’ve Reviewed Your Loan Application

It’s no secret these days that the Laws of Nature are being applied to our lending process. Only the strong survive, and survival is in the form of high FICO scores, cash reserves, stable employment and verifiable income. Obtaining three out of four may get you into the Baseball Hall of Fame, it’s just not likely to get you a home loan.

Credit is Becomming Harder to Obtain
Credit is Becomming Harder to Obtain

The words that once defined high finance and increased the rates of home ownership (at least temporarily) have been removed from the dictionary. Terms such as, “stated”, “no doc”, “option arm”, “80% first, 20% second” and “negative amortization” have been cast aside never to return. Could Ronald Reagan have been subconsciously sending our credit markets a message when he warned us about the Soviet Union by saying…..”Trust But Verify”?

We went to the ATM too many times pulling money out of the house and quickly discovered paper gains can quickly become actual cash losses. If the economy were a student driver, the brakes have been applied hard to the American consumer, but the pedal is to the floor and the car is in the acceleration lane known as federal borrowing.

The Taxpayer is the New ATM

If the lending guidelines applied to consumers were somehow miraculously applied to the federal government, could Uncle Sam qualify for a loan?

  • Lender: Uncle Sam, what are your assets?
  • Uncle Sam: we’ve had a bit of bad luck lately and unfortunately we are $11.3 Trillion in the hole
  • Lender: when was the last time you were in the black?
  • Uncle Sam: a few years back, more specifically 1969
  • Lender: any changes this year?
  • Uncle Sam: not this year, still projecting a $1.8 Trillion budget gap
  • Lender: Your asking me to put our depositors (taxpayers) money at risk when you have been in the red for 40 years and don’t see a turn around anytime soon?
  • Uncle Sam: Is there a problem?
  • Lender: application denied!
  • He Who Has the Gold Makes the Rules

    The Chinese are the primary customer for all of our newly issued debt. Why wouldn’t they support their best customer? They loan us the money and we in turn spend the money to buy the goods that keeps their factories going.

    Since the Chinese are so altruistic, what would happen if they opened banks in this country? What if they made mortgage loans allowing us to finance real estate, and in turn our real estate markets began to recover and much of the value that was lost would be replaced? Evidently they do have a propensity for risk and if default would occur, they would just own a bigger piece of the American dream. I seriously doubt that their lending standards would be anywhere as severe as their US counterparts. If capitalism thrives on competition, I say we increase the competitive playing field and let other countries vie for our business.

    I think we should enjoy the same opportunities that “we as a people” have, even though “we as a people” don’t.

    1 thought on “We’ve Reviewed Your Loan Application”

    1. Doug,

      Those terms like “stated” and “option ARM” are history. However, I think that products similar to them will reappear under new titles because there was a market for them. The underwriting guidelines for them are probably going to be a tad tighter, though, from the ones in the recent past.

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