So, we’ve all been reading about the changes that have occurred…and continue to occur…in the lending industry as a result of the backlash caused by subprime/no money down loans.

The process of getting a loan has become more and more complex and lenders will tell you that every day brings a new regulation (or two…or three…or more) that puts obstacles in the way of approving loans.

Don’t get me wrong.  I think the industry needed to change…but the pendulum has obviously swung much too far.

This hit home last week when I heard from past clients/friends who were trying to refinance their current loan.

Here’s the story:

This couple (let’s call them The Jones’), with a combined income of over $300,000 a year, impressive credit scores, no ongoing debt except for their current mortgage and current liquid savings of abut $800,000 had applied to refinance their $700,000 mortgage.

The Jones’ filled out all the required paperwork, supplied two years of tax returns and provided a check for the appraisal and application fee.  The lender/investor said that there was only one appraiser who was acceptable to them and, since that appraiser was only available on a date when the homeowners were going to be out of town, the Jones’ made special arrangements for a friend to meet him.

And then they waited….for over three weeks for the appraiser to come up with a value on the property.

At this point, it’s important to share that the $700,000 loan that the Jones’ were attempting to refinance represents less than one-third of the value of the property.

After the date for settling the refinance was delayed twice because the loan had not yet been submitted to underwriting, the Jones’ received a request for further documentation.  Since Mrs. Jones is a self employed real estate agent, the investor decided to question her year-to-date income, as verified by her company.

Instead, the investor requested a profit and loss statement, signed by an accountant verifying both income and expenses year to date.  The Jones explained that they only provide this kind of information to their CPA during tax season and that it would take them several days to put together the expense records for their CPA to review.

Instead, they volunteered to make copies of bank statements that showed all commissions (since they have them direct deposited).  The investor, a very large national lender who offices outside of the state where the Jones’ reside, declined this verification and insisted on something from an accountant.

So, the Jones took their business elsewhere.  And a week later were approved for a home loan at the same rate and terms..and with no further verification.

It’s a true story…and it begs the question…

Can the real estate market possibly recover when the regulations are so convoluted that banks deny loans to people like these?