By PETER ROSENTHAL, President
V.I.P. Trust Deed Company
Though this actual event occurred approximately four years ago and the bank has since been “swallowed up” by California Federal, the concept is still valid today. If you are not intending to refinance a property, this article may not interest you. On the other hand, you will probably have friends or relatives whom this column applies to. You might as well read this anyway, as it should make an excellent topic for cocktail parties.
Several years ago we had a second trust deed on a property, behind a small first. The borrower always paid on time. Approximately a year after we made the second trust deed, the borrower came to me almost in tears–he was that frustrated. He had been a customer of a major Glendale lending institution for approximately 30 years. In fact, his wife had gone to high school with the branch manager and they were extremely friendly. They had applied to this bank for a new first trust deed (refi) to consolidate bills and pay off the first trust deed (same bank), the V.I.P. second and approximately $18,000 in credit card bills that they had accumulated. The loan process had taken approximately six weeks and “their friend” the bank manager kept stalling. I was amazed then and am still amazed today that people don’t have the intestinal fortitude to ask a few simple questions like, “What exactly is the problem? Am I getting my loan, yes or no? Why are you stalling me?”
It turned out that the loan was rejected due to “high ratios” and the bank manager personal friend didn’t have the guts to tell him sooner. The ridiculous part is that the whole purpose of the loan was to refinance at just over 7.5% interest, thereby TOTALLY changing the ratios. The fact that the ratios would be perfect with the new loan was irrelevant to the bank.
The purpose of this column is to assure you that a 30 year relationship with XYZ Bank generally doesn’t mean a thing unless the personal relationship is someone on the “top floor.” Most people start their refinance application with their existing lender in the belief that they will get a better rate or that the process will be easier or that their good credit is known to the existing lender and the existing lender will jump at the change to make them a loan. In my above description, this borrower’s credit was impeccable.
Unfortunately, most lenders resell their loans in a package or bushel basket and those loans have to be conforming, i.e. owner occupied, single family, 1-4 units, “good ratios,” good credit, etc. etc. In this case, the “ratios” were the problem and, frankly, the bank just didn’t care.
Let me show you just how stupid and short sighted this is. I quickly solved this family’s problem in a manner as ridiculous as the original problem was. I arranged a new second trust deed that paid off my existing second and all the credit cards. This was easy as there was plenty of equity behind my existing trust deed. I arranged this loan with NO PAYMENTS, all due in one year. As soon as this loan was consummated and the credit cards were paid off (through escrow), this couple applied to a friend of mine at Home Savings. Home Savings, of course, has since been “gobbled up” by another major lender.
In any event, the loan went through like greased lightning as the credit was impeccable and the only monthly payment that this couple had was a small car loan and the existing small first trust deed. That, of course, made those famous “ratios” wonderful. Is this a sleight of hand trick? No, it is just dealing with the absurdity of the lender who has inflexible rules. There were many other ways to solve this problem but it was really fun to arrange it this way and then have the couple (less than 5 weeks later) explain that they now realize that a 30 year relationship meant ABSOLUTELY NOTHING. Of course, they then transferred their accounts to Home Savings.
Once again, the purpose of this column is not to pat myself on the back. Any good broker could have solved this problem one way or another. The purpose, again, is to convince you that your lender is going to go through “the motions” on a new loan just like any other lender, i.e. ratios, credit report, mortgage verifications, income verification, etc.
Peter Rosenthal
VIP Trust Deed Company