Risk based: Lenders might want to take a queue from FHA, or the temporarily defunct CALHFA. Yes, they take a little more risk by lending on higher loan-to-values, but they have back it up with reasonable debt ratio guidelines and sound Fixed and Arm products. They don’t make negative amortization loans. And even with those borrowers who have lower fico scores, they compensate the risk with the appropriate rate.

A little flexibility and common sense: If a borrower is refinancing and happens to have very stable employment,excellent credit, low debts, and very low loan-to-value (30%), then let them have a interest-only loan or a 5 year ARM. But if another borrower had a BK discharge on their credit, but the debt ratio was 28%, and the loan-to-value is 90%,then that is someone who maybe could only qualify for a 30 year fully-amortized loan. If the borrowers aren’t qualifying due to the debt ratios, then maybe a 35 or 40 year loan would be the product that would fit.

Get things moving: The lenders are dealing with losses, but they can help on their end by making sound products that help borrowers with purchasing or refinancing. This could save jobs as the lenders are able to make more loans and increase volume. Taking some risks and making sure the products are sound might help to get the financial institutions moving again.

I recently answered a question about what happens when a bank is taken over by the government. This got me thinking a little bit more about the pros and cons to having that happen. Would it be a good or bad or make any difference at this point?

To sum it up bank nationalization means a bank is owned and ran by the government. This has happened in our country’s history before and we came out ok. Case in point being the S&L debacle a few decades ago. The government took over and slowly sold off the banks’ assets and then eventually there was recovery. This also happened in Sweden and France, but France may be restarting the process. Below are my thoughts about the good and the bad regarding nationalization.

The good:

• More loans being made to consumers. More flexible guidelines would exist and more borrowers would qualify….
• Current deposits remain insured thru FDIC. Since FDIC can borrow money straight from the US Treasury, they would never run out of money.
• Equity holders would be wiped out..
• Possible guarantee of all deposits at US Banks…not just the one’s who are in trouble.This would raise levels confidence with consumers where they have their money, and shareholders as well..
• Foreclosure slow down…thereby banks won’t loose as much money and home values should normalize..

The bad:

• Customer service quality impacted. There would most likely be a decrease in quality service as banks become more conservative and lose employees…
• Closure of more branches
• Loans made to meet social objectives, quantity not quality. Banks may have a more political agenda…
• US Taxpayers taking on more expense/debt

Would nationalization solve the problem of bank failures? Or will this increase the crisis?

Will smaller banks be able to compete? Should the government discontinue anymore bailout programs and let the foreclosures run its course? It’s hard to say, anyway you look at it’s still going to be a challenging road….

You might have heard the frequent ads out there about loan modifications. But for someone who isn’t behind in their payments and can’t sell their home, are the lenders really willing to work with borrowers? What does a consumer do if their somewhere in the middle?

One story to tell….

Some clients of mine were trying to sell their home last summer. Because of plummeting values, they ended up having to wait. They decided to apply for a modification with their lender. The package included a hardship letter explaining why they needed a modification. These clients could still afford their payments, but due to unexpected medical cost and other unexpected expenses, a little relief was needed. These clients have great credit, and very little debt as far as their credit report goes. The only issue was that they didn’t have sufficient value any longer, and coming up with the difference was impossible.

To make a long story short..

My clients were sent a loan application to apply for a refinance. No one called them to discuss their specific situation. A few weeks went by and then they received a denial statement for excessive obligations. The kicker was that the denial notice didn’t have a phone number or even the information on what credit agency was used when their credit was pulled. They tried to contact the resolution department to see if they could find out what their ratios were and perhaps pay down a debt to make the numbers work. They were told what the basic ratios were (28/38) and that was it. The CSR couldn’t transfer them because the department wasn’t taking any calls. They couldn’t speak to an underwriter or a credit manager. I thought that was interesting that if they were approved they would be contacted. 

What can be done if you are trying to get assistance?

Well if you have the cash to pay an attorney or a Real Estate professional then contact a qualified and licensed attorney through the California State Bar or compare the services and fees offered by other licensed brokers from the Department of Real Estate. If you don’t have the money to pay for this type of service then contact a non-profit agency that offers home loan programs such as:

• Home Ownership Preservation Foundation
• Department of Real Estate 
• California Consumer Home Loan Information Program

If lenders are going to modify a loan, shouldn’t it be done pro actively and not just after payments have been missed? Why are those who are current with their payments but in a tight situation not rewarded, and those whom are missing payments are rewarded?