The Truth About Truth

We had a meeting today on the new Truth in Lending requirements set forth in the 2009 "Mortgage Disclosure Improvement Act" (MDIA). This act furthers the consumer protections installed in the Truth in Lending Act, which regulates lending practices for any credit secured by a residence. It's a complicated, multi-page, puffy-languaged, 'therefore'-riddled rule that basically says: "If I borrow five bucks and you tell me I have to pay back seven, you can't come back to me on the day I need the money and say 'make it ten'." Fair enough. The problem, as I see it however, is that bankers still have an awful lot of unchecked power to make the process miserable - even if they're honest while they're doing it.

Take, for instance, the current stance on downpayments. In order to buy a 2-4 unit building, even if you are going to owner-occupy the property, the bank automatically suspects a fraud case waiting to happen. So banks are requiring buyers to have 25% down before they'll even consider giving out a loan on a small multi-unit building. (More money equals less chance of deceit? Have these guys been watching the news?)

If the average 2-flat in our market is going for $250,000 (and, my fellow two-flat owners, I feel your pain) that means $62,500. Are you kidding me? In this economy?

Next order of business is checking credit. It better be tip-top. No hint of trouble coping with the worldwide stranglehold reality has on our economy better appear on that credit report. Nations may crumble, industries tumble, but your buyer better have a 620 minimum.

Then the lender, with downpayment money laid out like rose petals before him and a client credit score so tight he could bounce a penny off of it, goes to work finding the right loan 'product'. When he does, he sets about getting an appraisal. This process has become the inside joke in real estate. Even appraisers themselves know it is a joke.

Think of it this way: You go to your friend to borrow twenty bucks to buy a pair of shoes. Your friend responds with something along the lines of "I'll loan you the twenty bucks, but first, I need to see what the shoes are worth in case you don't pay me. My buddy Vito is going to check out your shoes, and then look at how shoes have been selling over the past six months. If the numbers jive, we're good." That was fine in those heady days of yore when footwear was practically laced with 18k gold.

But now? There are no comparable sales numbers to analyze and offering the bank a property to keep as an asset is like offering that friend of yours a pair of sole-less, strap-less, moth-eaten, more-hole-than-leather shoes. At a barefoot convention. And Vito? He doesn't have feet. Never worn shoes in his life.

If we get past that, it's off to the closing. We're practically there and all signs are that we are T minus three days. But, then. Wait. What's this?

At the beginning of the process, the Truth in Lending (TIL) law required the lender to give you a Good Faith Estimate (GFE) of all the numbers involved in your transaction - fees, charges, expenses of involved parties, credits, debits, etc. That's to protect you. The consumer. But now, as it turns out, some of those estimates were off and the numbers have changed.

Enter our friend MDIA. A new GFE has to be prepared and the MDIA ammendment to the TIL requires you to get WTF'd into postponing your closing for another seven days while you wait for yourself to be protected from the truth about the numbers you're spending.

But the real truth is this: the banks still have more power than they should.

In my opinion, the MDIA, while a valuable and worthwhile enactment, is futile not because it doesn't address the issues it regulates, but because the greater truth remains untouched. The consumer remains vulnerable. Banks control the loan products they wish to offer, the down payments they're willing to accept, the rates they're willing to offer, and the time they're willing to take to process loans.

The consumer is the skinny little kid with wispy hair and thick glasses holding a contract in one hand and his courage in the other, facing a bigger kid wearing a 'green is for money' tshirt and greed-drool as an accessory. Our little guy's only protection is his friend from the math club - a smart kid with some knowledge of the system and a line on the big kid's weakness. Our prince valiant needs his buddy to look out for him, support him, encourage him, stand between him and the big green monster and keep the whole thing civil. But where to find this kid? The honest one with the good face and the knee-high socks? Funny you should ask.

You can't see my socks - but they're there - and I'm here to help whenever you need it. Call and learn more about how the services of a professional real estate agent can give you the confidence and security you need to brave the market and make your dreams a reality. 773-457-2495