VA Loans Blog

Who Really Caused Our Housing Crises? Not America's Veterans!

June 5th, 2010 5:05 AM by Joan Rusco

Here's something those of us in the VA Mortgage business deal with all too often: having to tell a client they don't qualify for a loan. Case in point: a Minnesota National Guard member wants  to buy his first home using  his VA Loan benefits. This guy is  great, he's  saved  several thousand dollars, his credit score is  in the upper 700's, yet he's turned down because his debt to income ratio is too high. Never mind that he is handling the debt to such a degree that his FICO is in the clouds. The ever tightening underwriting guidelines exclude him from a first time home purchase. Never mind that he works a regular  job, goes  to school and serves his state in the National Guard. The rules are the rules and lenders can't see outside this box. We've worked with him  for  weeks as he paid off one debt and then another. Finally he's willing to pull more savings and refinance student loans. All in an effort to get his debt to income ratio down to please the rules.

Why have lenders tightened the rules? It doesn't take much effort  to see the answer. The mortgage community made loans available to people who couldn't afford them. Or the loans were made  to people ill-prepared for adverse situations such as losing a job or medical emergencies. The mortgage loan still had to be paid. Character didn't count.  Because of these tough times our client, the one with the great credit score, work ethic and ability to save, was denied. He is paying the price for  bad decisions made by others. And who made these bad decisions? I point to two major  players in the  mortgage meltdown who are thus far excused from any responsibility. People who made more money last year than you and your family will make in a lifetime. 

We can make a very strong case that our housing and mortgage problems  of recent years were brought about not just by consumers making bad choices, but by policy makers who were convinced that everyone should have a home of their own whether or not they could afford it. Thus was born the so-called sub prime mortgage, loans made  to people who  had never before been able to qualify for much of anything. Buy a house with bad credit or no credit? Sure. Buy a  house with no provable income? Sure,why not? What's the  risk to a bank that lends the money? Not much. Here comes Fannie and Freddie ready to buy these loans from the banks, bundle them and then sell them as securities. This leads me to my point about major players in the  mortgage  melt-down being  paid despite their  leading us to the situation we're in today.

The CEO of  Freddie Mac made almost $6,700,000 last year!  Not bad, eh? Kind of makes one feel sorry for the other major player, the  CEO of Fannie  Mae. He only made about$2,100,000 for his efforts. So while  all the policy makers  on Capitol  Hill are dragging overpaid  CEO's in front of committees, while they are blaming the banks and trading houses, we wonder; why aren't they also willing  to look at the  roll these CEOs from Fannie and Freddie had in the housing mess we're in today? For that matter, why is Fannie and Freddie exempted from the financial market overhaul?

We think had all of this not happened our stellar client, the working, going to school, saving guy who can't qualify for his VA home loan, would be moving into his  own place today and all of us in the mortgage business would be a lot better off serving those who deserve homes  of their own.

Posted in:General
Posted by Joan Rusco on June 5th, 2010 5:05 AM

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