Book Trailer The Noble Train

Monday, July 6, 2009

The Dirty Little Secret of the Banks

Maybe you heard that another seven million homes will go into foreclosure in the next two years. Maybe you heard that the average salary at Goldman Sachs is now seven hundred thousand dollars. That is the average. Maybe you have heard that loans don't go though and the promised loan modifications have taken place for only a handful of people (something like twenty thousand loans were modified.)
Maybe you heard that appraisals are routinely cut to the point where the loans are rejected or that credit card rates are skyrocketing and the banks are loading up fees on checking accounts. Maybe you heard that the new Johnny Depp movie is very popular because people are identifying with John Dillinger against the banks. There is a reason for all this: the banks have decided the middle class is a bad bet. And they really don't want to lend money anymore.
I have taught, sold real estate, waitered, worked construction, worked in a bakery and brokered a few loans during my long tenure as a writer. During the boom you put the loan in and generally they went through. I stepped out of the part time brokering when my book came out. Times being what they are, I put my license with another firm this year and put in a few loans. Every one came back denied.
Why? Every appraisal was slashed by the banks. Every income was questioned. Every Fico Score did not measure up. These were all people with stellar credit and good income. Their homes were in the Chicago land area. But all these people were denied. I put in a few more loans but they never made the cut because of the amount of points I would have to charge just to put the loans through. I realized then that the whole system was set up for one thing now--to reject ninety percent of the loans. As another broker told me, "The banks don't want loans. They don't want to lend anymore to the middle class."

This is the dirty little secret. The banks have received their TARP money. They are fat and sassy once again. But none of that taxpayer money is trickling down because the banks simply do not want to lend anymore. Not to the average American. Sure. If you have an eight hundred Fico. If your debt to income ratio is 24/32. If your loan to value on your house is 50 percent and you have a fat 401k or bank account (six months reserves PITI) then you might get a loan. Might. But effectively the banks have set parameters that wash out ninety percent of the people.
If you have dealt with the banks then you know what I am saying. They are not modifying loans. They are not trying to work with people. They are simply foreclosing and selling the homes on the short sale market. They are giving lip service to the Obama administration, but they are essentially zombie banks--institutions that have been propped up by the government,but are not fulfilling their mandate to lend money to ease the credit market. The credit market is still shut off and there is no credit for the middle class.

Brokers and people who work in the banking industry all know this. Applications are still taken. People go through the drill, but you know the loan will not go though. It is all for show. The system is now set up to keep people out of the lending market. The very people who created this mess are ensuring they will have enough money to stay afloat and that means keeping it for themselves.
The talk on the street is that the only loans going through are government loans--FHA. These are insured loans by the government. The only person lending now is Uncle Sam, but the bottom line is that until you get money back into the hands of the middle class then this recession will only get worse. You would think the banks would know this...or maybe they just don't care. Looks like Johnny Dillinger is about to have a comeback.

Books by William Hazelgrove