Getting a Mortgage Without Having Income Is Difficult--FYI to retirees

Here is an example of how the banks are probably acting prudently, even though it is easy to see how some would think, "Wow, the guy has a million bucks and the bank won't lend to him??"

http://www.cnbc.com/id/100719396

Income is more important than assets when it comes to evaluating mortgage creditworthiness.  $1mm in the bank gets you about $30k/year right now in a conservative (but not "no risk") portfolio.  If the bank needed this guy to have an income of $100k and he was getting $60 from investments and Soc Sec, then they were smart to deny him the loan or offer him a smaller amount to borrow.

And the loan officer would be in need of a talking-to for misleading the applicant in the first place--one of the major things that got us into trouble last decade.

The Foreclosure Fiasco!

This week has seen a new news issue on the top of the headlines: the "foreclosure fiasco".

Reportedly, some lending company managers and executives have been just basically robo-signing or rubber-stamping foreclosure documents. The concern, in case it's not readily apparent, is that such automated approvals could result in some folks being mistakenly or undeservedly kicked out of their homes.

So, there is a moratorium being imposed until the nature and depth of this issue is understood.

According to John Malloy, Executive Producer of the show "Fast Money" on CNBC, here are some recent data and observations:

"One in every 139 mortgages are currently in some state of foreclosure, an increase of 4% from last quarter. However, recently discovered issues within the foreclosure process at a number of large banks have politicians crying out for at least a brief moratorium on further foreclosures. Several of the bigger banks have already voluntarily slowed or stopped the process until procedures can be examined and improved."

And, "Without the moratoria, the percentage of foreclosures as a percentage of total loans outstanding is already at the extended rate of 4.6% - 288,000 homes were seized in third quarter alone."

Re-Fi Updates

Progress. The lending industry is still a shambles, but it is at least opening up a bit.

One client owns an investment condo and wants to re-finance into a shorter-term and a fixed interest rate, even though it would cost him more money each month (giving up some cash flow to obtain more stability). The condo is worth twice what he owes on it, and it's more than paying for itself for many years now as an investment property. Still, earlier this year, he was just-plain rejected... "We don't do investment condo re-fi right now. Sorry."

Last week, though, the same person got some traction. "We can do that. The rate for investment properties is a lot higher than if you lived in the condo, and we can't let you take any cash out. But we can definitely re-finance it for you if you like the numbers we offer."

Not great, but progress, and I am trying to monitor the key economic signs for us.

Bill Gross' Big Idea

Bill Gross, the "Warren Buffett of Bonds", is in the news this week. He has a radical idea to help "Main Street" and boost the economy.

In short, the tremendously successful billionaire, who runs what is the largest and, arguably, the best mutual fund in the country, wants Fannie Mae and Freddie Mac to lower the interest rates on all mortgages they hold now. Significantly. Like 6% loans would go down to 4%.

This would massively reduce the monthly payment obligations of the borrowers while still requiring they pay-back all of what they borrowed.

This would not require lenders to write-down the value of assets, either. They'd have to suck it up and plan on 1/3 less income, though.

Let me know what you think.

Newsflash: It Was Not Just "Sub-Prime"

It never was, but it was easy for pundits, and more convenient for politicians, to say it was.

Saying it's just the "sub-prime" borrowers that are defaulting allows Left-wingers to manufacture a victim in this mess, and it enables Right-wingers to blame it on the less-able or more lazy among us.

But get this: one in seven mortgages over $1mm is "seriously delinquent", while only one in 12 mortgages below $1mm fit that bill.

You read that right. The more affluent borrowers are almost twice as likely to be up a creek on their mortgages than everyone else.

From a "what the heck were the banks thinking" standpoint, Sub-Prime is a much larger share of this mess, and so that issue is not to be ignored. But what does it say about the direction and mindset of our country when the more successful among us are more likely than the masses to do the wrong thing with their financial lives?