Mortgage loan

Getting a home loan can be a challenge for self-employed people: A typical mortgage lender wants to see one job with steady month-over-month income.

But an independent contractor might have time off between jobs, varying amounts of income each pay period, and business income that looks low because of capital investments, which are common tax write-offs for the self-employed. This often means they can’t qualify for a traditional home loan, even though they’re earning enough to afford it.

In fact, about one in four borrowers see their traditional purchase loan applications rejected in areas like Dallas and Travis counties, where self-employment is roughly 30 percent, according to Zillow. Around the rest of Texas, the chances of being rejected can be even higher for well-qualified borrowers, including small business owners, freelancers, entrepreneurs, and self-employed borrowers.

“It’s not that they aren’t financially capable of buying a home—it’s that they’re up against a traditional lending system that hasn’t adapted to a changing workforce,” said Michael Slavin, CEO of online mortgage lender Privlo, which rolled out its services in Texas Friday, one of nine states in which it is currently doing business.

“We underwrite each borrower and are able to tailor the loans,” Slavin said. “We’re using technology to be a lot more flexible because we deal with the exceptions to all the lending rules.”

Because of those exceptions, Privlo considers many more data points beyond the typical W2 used by traditional banks and institutions to assess a borrower’s creditworthiness, like tax returns and bank statements.


Making it Rain

Interesting story in the Los Angeles Times. According to their business desk, banks are easing lending restrictions and lending more freely, using “creative financing,” which could bring more risk to the market.

The story, which talks about “piggyback financing” and other risky mortgage loans, says that with higher prices comes more risk in housing finance. This all sounds familiar, doesn’t it?

With home prices rising, risk is creeping back into mortgage lending. In addition to creative down-payment arrangements, mortgages on high-end properties — so-called jumbo loans — have also gotten plentiful and cheap. Meanwhile, banks are accepting borrowers with lower credit scores and allowing them to take on more debt relative to their incomes, experts and industry professionals say.

“We are definitely not seeing the looseness we saw during the boom years, but it seems to me that the pendulum is swinging back,” said Erin Lantz, director of real estate website’s mortgage market.

The relaxing of standards comes as banks rely more heavily on new home loans to replace big profits from the recent boom in refinancing, driven by historically low rates. As demand for refinancing declines — and interest rates start to rise — some analysts say an improving economic outlook will cause banks to lower standards further.

But while banks may be lowering standards, and while the Fed is poised to increase interest rates, mortgage restrictions under Dodd-Frank will be coming to bear soon, making lending a series of hoops homebuyers must jump through.

And while some banks are lending more, I hope that we’ve all learned our lesson from the sub-prime mortgage crisis. We have, right?

The Wall Street Journal and other financial news media are reporting that the U.S. home ownership rate has slipped to it’s lowest in 15 years, and experts predict it will slip even further. Why? Mortgage lending is tighter than a violin string, with no signs of loosening, not even for an election. This echoed what every single Realtor I know says: we have record low, like HISTORICALLY  low mortgage-interest rates and falling home prices that have made homes more affordable than at any time in the past decade. But whose lending money? Not the big banks, that’s for sure. Could this have anything to do with the fact that five institutions in this nation control 50% of all the deposits? Talk about an oligopoly. Warren Stephens (a Little Rock, Arkansas wealth manager) argues that we need to dismantle the big banks, and I believe he is correct. A recent re-financing experience put me through the big bank wringer. Mr. Stephens solution, in case you cannot read the actual article, calls for a five-step program I whole heartedly endorse:

-Gradually reduce the bank deposit cap to 5% from 10%.

-Demand the breakup of banks that already exceed the 5% cap.

– Force banks to choose between commercial banking and investment.

– Retain the $250,000 limit on deposit insurance indefinitely. God help us if we ever had to invoke this protection.

– No more bailouts. You screw up, you pay the price like the rest of us.



Boarded up brownstones in Cicero
Boarded up brownstones in Cicero

I never thought I’d see the city of my birth blow out Miami and Phoenix when it comes to having the most foreclosures in the nation right now, but Chicago takes the cake. Almost 119,000 homes in foreclosure. The problem: those stubborn banks are not letting go. This, of course, in President Obama’s home town, too…

This photo by Jana Martin, Neighborsgo/The Dallas Morning News, was in the Home section of the Dallas Morning News March 4.  Clarice Tinsley and I were saying Happy Birthday to Ebby! Thanks to Maloree Banks for telling me about it and sending a hard copy, thanks to Jana for sending it digitally!