Open Letter to the President re Getting a Mortgage

Dear President Obama.

The Home Mortgage Doublespeak Continues

Dr. Bernanke and his friends at the Fed seem to be completely out of touch with the real world.

I am a mortgage broker in Las Vegas. The Fed says it is using taxpayer money to drive down mortgage rates. But the banks are doing everything they can to maximize their profits and keep the mortgage rates high. This is the primary reason home sales are continuing to tank, regardless of what the rich boys at the Fed and the banks tell you.

Here’s and example:

A Veteran with a solid job, wants to buy a bank-owned, previously foreclosed home for less than $75,000.

He has modest savings and can put 5% down. He has good income and few expenses, so his debt-to-income ratios are conservative, 21% and 33%. His FICO score is 571 because he has some old medical collections on his credit report. Paying off the collections will reduce his FICO score – another stupid thing that is worth you looking into.

Now here’s where the banks are screwing the public once again:

1. Because his FICO is under 620 the banks want 3 additional points or $2250 upfront;
2. Because the loan is under $75,000 (too small) the banks want another 0.75 points or $563 upfront;

This totals 3.75 points or $2813 to do the loan, irrespective that the loan is VA insured. This is outrageous. But, it gets even more stupid.

The par VA interest rate is 4.875%. This would make the monthly payment $377.

Financing 1.85 points (the maximum the banks will allow) into the loan raises the rate to 6.875%, increasing the payment by $91 to $468, and still requires 2.15 points or $1612 upfront.

Now, we have the VA mortgage insurance. The funding fee is $2351 and the monthly premium is $32.

The Veteran buyer now pays $500 per month. But hold on here. Because the lender will only allow the seller (the foreclosed bank that desperately wants to sell the property) to pay no more than 6% of the closing costs, the VA insured buyer must pay an additional $678 in closing costs even though the seller is willing to pay this cost.

In summary, the banks have increased the buyer’s interest rate 2%, and gouged more than $6000 in fees for an average working American to buy a home. Mr. Bernanke and the Fed can buy all the T-bills they want – but the banks are still ripping us off.

I hope that you can see why we feel that you, Mr. President are not getting the straight talk from Mr. Bernanke and his banking buddies. The banks are making it almost impossible for average working Americans to purchase or refinance homes unless we pay them outrageous sums.