I'm no economist or banker, so I occasionally labor under the delusion that banks are supposed to lend money to credit-worthy people. Of course, they diluted the definition of "credit-worthy" a few years back. That ruined their liquidity. Then the Feds stepped in with the Troubled Asset Relief Program.
Silly me, I had also thought TARP was partly aimed at restoring banks' ability to lend money again.
Read the following (real) tale of woe from a qualified would-be borrower--let's call her Jane--and ask yourself why Wells Fargo would be so hesitant to lend.
For a clue, look to the end of Jane's tale.
Jane's Tale: If I Can't Get a Mortgage, Who Can?
Last spring my sister and I decided to build an addition onto our vacation home in Northern Minnesota. Given today's economic climate, we knew it wouldn't be a cakewalk but we had no idea what a nightmare lay ahead.
Our family has owned lakefront property on Lake Superior since 1971. It's prime vacation area with large million-dollar+ homes built on either side. Our parents deeded us the property 20 years ago, mortgage already paid off. After our mother died last year, we decided to build an addition. We hired an architect and a contractor with a long and credible reputation and a crew ready for work.
We looked for a bank that would provide a construction loan for $250,000, for conversion to a mortgage when construction was completed. We went with Wells Fargo in Duluth. Their banker told us a loan was possible, but we'd need to open a business account first. My sister deposited $30,000.
Two weeks later, I was in the bank's mortgage department armed with my loan application and identification; 2007 and 2008 tax returns; pay stubs; bank statements; property tax and home insurance records on this and my primary residence. He soon persuaded us to quit claim the LLC. I would become the sole applicant for the loan because I was an "ideal customer."
Here's my profile:
- My income is in the top 10% of U.S. households; I've been a senior executive for ten years with an international NGO;
- I own a car and home in the NYC area and paid off my mortgage in 2001;
- I have one child in college and another who has graduated and is self-supporting;
- I have two credit cards which I pay in full every month; my credit score is 775;
- I have liquid assets worth more than the value of the loan; my retirement account is substantial but not lavish after the 2009 freefall;
- The title search is clear and the appraisal of the lakefront property is520,000.
The bank then required me to close the business account and open a personal account. I transferred the $30,000 and added $5,000 for good measure. I requested and got written permission for an "early start" on the construction because we needed to get the foundation poured before the Minnesota winter set in.
For the next two months I endured slow torture at the hands of Wells Fargo and their big, bad "underwriter." They peppered me with dozens of demands for information and ridiculous questions (Q:"Where did the $30,000 deposit come from?" A: "From the Wells Fargo business account you required me to open and then close."). I was asked to fax my driver's license four more times and to disclose the terms of liquidating my 403B.
When I was asked to explain why I made a late payment on my VISA bill in February of 2002 (7 ½ years ago!) I blew my top. For seven long weeks I was told that if I just met a few more conditions we could go to closing. These requests came from various Wells Fargo offices around the country - and were often redundant. When I asked to speak with the underwriter directly I was ignored.
Meanwhile, we were continuing to pay cash to our contractor so that our beautiful house could go up before winter. I reminded the banker that every delay in closing meant that I would be borrowing less money and they would earn less interest. Did they want to make a deal or not? We set a closing date of October 16. Ten days before, I had a conference call with the mortgage banker in Duluth and the Senior Relationship Manager in Minneapolis. I reminded them that I was flying out to Minnesota so they needed to tell me exactly what I should bring with me for the closing. The answer was "only your driver's license."
On October 15, hours before I was to board my flight for the scheduled closing, I was presented with several more conditions that had to be met (Q: "Could you explain the large deposits made into your Citibank account in the last month?" A: "You've seen my paystubs; that is my income.") and then "we should be able to close in five days." The banker's e-mail said, "I imagine [that after] having been run through the gauntlet... it is doubly frustrating to have to provide so much detail when you are clearly the kind of borrower any bank should love to have."
At that point I realized I was never going to get a loan from the mortgage giant Wells Fargo, nor are they seeking ideal customers who pay their loans. Happily, our architect is talented and trustworthy and our contractor is honest and hard-working. Those business relationships have been highly professional and free of impediments. We can finance our second home without paying Wells Fargo $50,000 for the privilege of lending us money. But if I can't get a loan, who can?
No wonder we have a credit crisis in this country!
Wonder why Wells-Fargo was so unwilling to lend, and unwilling to talk about it? Here's a clue.
TARP repayment, I believe, is contingent on increased equity and capital ratios; higher capital helps, so does lower assets, including loans. Why would Wells Fargo want to pay back TARP so quickly?
From the San Francisco Chronicle of January 1:
The stock awards come on top of stock-based salary increases worth nearly $14 million for the same four executives announced in August. That boosted CEO John Stumpf's salary to $5.6 million, more than six times his 2008 base pay. The company said at the time that the raises were intended to move the leaders in line with industry pay averages. The executives couldn't sell that stock until Wells Fargo paid back the TARP loan.
Draw your own conclusions, and share them here.