OK, folks. The most recent legislation proposed to curb abusive lending practices and eliminate those “liar loans” referred to in staff writer Dina ElBoghdady’s 5/27/10 article in The Washington Post (Senate, House financial overhaul targets lending practices of mortgage crisis) is more than I can take without getting on this mini soap box and spewing forward.
First, let me state for the record that I am not in favor of abusive lending practices. I want my clients to avail themselves of the best possible loans for their individual circumstances. I want them to clearly understand the ramifications and limitations of their options. I want them to make sound financial decisions based on as much information as they can gather and assimilate.
But after buying and selling 28 homes and investment properties of my own over the past 33 years, opting for 80% loans, 90% loans, 80-10-10 loans, 80-20 loans, interest–only loans, negative amortization loans and a variety of adjustable mortgage programs that range in length from 6 months to 5 years before the payment changes, I now find that the pendulum has swung so far to the opposite side on what constitutes “abuse” that the current lending climate has hit home (pardon the pun) in a most unusual way.
I cannot get a loan!
Like many of my clients, I earn a 6-figure income. I pay my bills on time. I keep my credit score in the mid-700s or above. I support myself, my 86-year old mother who resides in an independent living facility and my ex-husband (for a short time by agreement – don’t ask). I have substantial assets. I save for the future. I pay my taxes – lots of them. I donate to charity. I have never filed for bankruptcy or sold short. I am a good person. But in the eyes of the mortgage industry, I am a pariah because…
I am self-employed.
At the moment, even though I have loans on my residence totaling more than the property is currently worth, I am probably better off than most in my situation.
In 2007 when I purchased my current home, I opted for a one-year adjustable rate mortgage (ARM) at 6% interest, with adjustments tied to the one-year LIBOR index, which sits pleasantly at 1.15% this week. The following year when the rate adjusted, it went down to 5%. In 2009, it went down again to 4.25%. This month it adjusted down to 3.175% for the coming year. I have my mortgage lender, Karen Lucey-Guess of McLean Mortgage Corporation, to thank for bringing this loan to my attention and for completing it one week before no income verification loans disappeared from the lending market.
But here’s the rub:
Because the Internal Revenue Service allows me to take legitimate but substantial deductions against my gross income, it appears on paper that I do not earn enough money to pay for groceries, much less cover the obligations I do on a monthly basis.
I have operated my business since 1997. I can show steady increases in gross income since then. I don’t pad my expenses. I keep boatloads of receipts. I was even audited last year by the IRS and cleared the process with no changes to my tax liability.
Why am I a bad risk? And why can’t lenders take into consideration that some of the deductions I claim that look like they reduce my income but actually don’t (in-home office and automobile and equipment depreciation, for example) are paper exercises only?
So I say to all the great lenders out there who are trying to do right by their clients and still earn a living, as well as to the congressional representatives and senators to whom my pleas fall on deaf ears because I live in DC and have no voting representatives to complain to,
“Check my credit. Verify my assets until the cows come home. Look at what I have been able to accomplish over the years. Tell me what interest premium I must pay for you to assume greater risk.
I am not asking to spend beyond my means. I am not frivolous in my spending. I understand what I’m doing. So don’t lump me in the category of “liars” just because my income cannot be verified by a W-2 form or because I have elected to provide quality service to people who need it while being my own boss.
Just loosen up already and give me a loan!”
