This is a critique of Big-Bank policies based in my recent personal experience.
Recently my wife and I tried to refinance our mortgage. This brief article is a critical look at how our efforts to be responsible homeowners were stymied by two major banks.
First, a few details: we moved to Texas in 2010 for our new jobs; we own a house in Ohio and rent in Texas. We have never missed a payment on our house. Our experience with the banks has taught us that our responsible behavior had placed us outside the reach of government help as well as outside the aid of free market competition.
As we had bought our house in 2007, our interest rate on a conventional mortgage is 6.5 percent, which is exceptionally high in today’s market. Hoping to lower the rate, we went to our local Chase Bank, our mortgage is with Bank of America. The chase loan specialist gave us the following reasons for not being able to take over our mortgage.
We do not qualify for a loan modification as the house is considered an “investment property.”
Chase could not refinance our house because they could only cover seventy five percent of the house’s value. As the house has lost its value, it has no equity.
The Chase expert told us to go back to Bank of America and ask if we qualify for HARP.
Now, this step informed us that some government regulations cannot help us and that we cannot rely on Market competition to change our lender.
When we talked to Bank of America experts, they told us that we do qualify for HARP, but Bank of America, due to an internal policy, was not applying HARP to “investment properties.”
Even though we tried explaining that ours was not really an investment property but rather the only house we own, their computers had no other way of looking at it. The outcome, of course, was in the bank’s favor as our inability to refinance through their competitors or through government programs is totally, no pun intended, foreclosed. Since we have a high interest rate and pay our mortgage, we seem to be part of a reliable stream of responsible customers who are trapped in high interest rates.
So, our dealings with these two major banks have taught us that even though every one knows that we are all living in a down economy, the banks are still applying algorithms that were developed for a thriving economy. The qualification model that I discussed above does not take into account the following realities of a down economy:
People move in a down economy to wherever they can find better jobs.
The housing prices are unusually low in a down economy and so is the equity.
For the banks to insist that our only house is an “investment property” gives them the technical legal edge to deny us any homeowner incentives or regulations mandated by the government, thus leaving us outside the benefits of government regulation. As we do not live in the house we own, we cannot qualify for the loan modification program.
For the banks to base their refinancing on the value of the house in a down economy leaves us with no recourse to free market competition. The only way we could leave Bank of America and go to another lender is if we had enough money to cover the loss of equity in the house. This leaves us outside the free market solution to our high interest rate trap.
In this ingenious system, homeowners like us are trapped in their high interest mortgages with neither the access to government help nor recourse to market-based solutions. There must be quite a few of us out there.
Our only option, according to my basic math, is to stop paying, and then, maybe, the banks will come and “rescue” us.
(Source: http://www.masoodraja.com/...)