The lender can't talk to the credit agency because of privacy laws and vice versa. There was no give. Our daughter eventually got it done but it was such an excruciating exercise that I am sure many would give up on it. She got her loan after working through an extremely unfriendly bureaucratic process.
I was told of a farm borrower who was well healed who couldn't refinance his home with mortgage lenders because of a loan on his credit report that required a large one-time payment. The credit rating agencies couldn't see how he could make the payment, which the banker said he would have no problem at all servicing, so they gave him a low credit score. The mortgage lender couldn't refinance because of the low score.
The credit score rating agencies don't do agriculture. They don't understand complicated financial statements or tax returns. The result is that some very wealthy people have low credit scores that Freecreditscore.com won't fix because they don't understand them either.
In another instance, a farmer was denied refinancing on a home because of the number of loans on his credit report. They had an arbitrary limit of five. The borrower can be worth millions of dollars but if they have over five loans, they can't refinance. This is crazy. It is also lazy, as the mortgage lenders really didn't want to work very hard determining borrower credit worthiness.
There are millions of Americans who are making their mortgage payments that are locked into higher interest rates unable to refinance due to a wall of reasons. This is frustrating the Fed. The Federal Reserve has begun buying mortgage bonds, lowering mortgage interest rates, last week to 3.34 percent with the intent that this will reduce loan service costs and unlock the consumer's ability to spend.
At the height of the housing bubble, lenders would loan to anyone with a pulse. Today, credit worth has come full circle to where lenders and underwriters refuse loans for what Fed Chairman, Ben Bernanke, sees as technicalities. The AP wrote, "Bernanke says some tightening of credit standards was needed after the 2008 financial crisis. But he says the pendulum has swung too far the other way. He says some qualified borrowers are being prevented from getting home loans."
Bernanke is right. Fannie and Freddie bought every loan shown them when the mortgage credit bubble was inflating. Now, they protect themselves with new rules allowing them to throw default back at originators on technicalities. That makes it hard for my daughter's lender to have every T crossed with the underwriters to the point where it is anal. It is a pendulum and it has swung too far.
Such tight credit is not in the interest of the economy and it undermines the effectiveness of monetary policy. Mortgage rates could be zero percent and if borrowers don't qualify for the loan it makes no difference. That is the Fed's conundrum. Bankers are feeling put upon by Dodd-Frank and likely rightly so. That was an over-reaction too. Rural farm banks had nothing to do with the home mortgage fiasco, yet they are included in the onslaught of new regulation. We needed better bank oversight but not crushing overbearance.
It is what it is and the reality is that prospective borrowers who represent good loans don't meet restrictive credit standards. Bernanke is asking banks to better judge credit worthiness and not be ruled by technicalities.
The U.S. economy is not going to recover until the housing sector does. Credit-worthy borrowers need to gain access to mortgages and refinancing. That's how home values begin to recover and the housing sector begins to hire, both very important trends needing to be strengthened.
David Kruse is president of CommStock Investments, Inc. author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet. CommStock Investments is a registered CTA, as well as an introducing brokerage.