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Wednesday, December 7, 2016

I Think We May Actually Have A Solution - The Lending Industry Part 3

So on Monday we still had no word from anyone, except the private lender, that was offering only 65% loan to value, and charging 12% on a 1 year term. So needless to say we were pretty dismayed to have to go to sleep with total uncertainty and only 2 days to go before the expiry of our second extension.

By Tuesday morning, I was seeking out the local lawyers to try and get some independent representation, as I figured we were going to need it at the rate things were going. But every lawyer I spoke to was too busy to help us. There was one though who was kind enough to let me bend her ear for 10 minutes at no charge and sympathize with our plight.

Later in the morning, we finally got word on two fronts. A local bank processed our application and contacted me for additional documents, which I provided. Then I was requested to come into the branch to meet with the loan officer. Could this actually be? A 5 year mortgage at 20% down and under 3% interest?

Then Laking got back to me to tell me that Equitable was deliberating over the new sales report and he had no updates. I backed off completely, given the fact that I had done everything I could do, and the fact that it looked very much like we would have an approval by the end of the day.

So at 4 pm, I met with the loan officer at the bank. I walked her through the documents I supplied her, explained my business, brought one of my stockbooks with me, so that she could actually see what my business is about, and further explained my relationship with my old firm. When the meeting was over, I had the approval! And, I was, get this, given a Mastercard with a $16,000 limit. Go figure. Two days ago, nobody would approve us, and now we are not just being offered a mortgage, but more opportunity to get in more debt as well. What did I tell you?

So after sending the approval to the realtor, it has now become a waiting game: waiting for the sellers to agree to extend the close until the funding comes through from the bank. Hopefully, it will come through by Friday, which will allow us to move in on Saturday morning. But it might not come through until next Monday, December 12.

This morning, I woke up to the following e-mail from Laking:

Hi Chris,

I have another update for you on the application with Equitable Bank.
With all the reports we have sent they are still having a hard time being comfortable with the income.  They have been trying all day to figure out a way to make this work as they do see some strong pieces of the application but their main concern is income coming in.  I explained to them in every way I could think to show them that the business is consistent.  They did settle on how they would be willing to proceed.

So they will proceed but here is how it would work.
They have a different mortgage product that is more flexible with income but it requires 35% down instead of 30.
I know you wanted to proceed with a smaller down payment but based on what you have in the bank now, what you have in PayPal and your deposit you technically have enough.
I realize it wouldn't leave you with much left over.
The interest rate would also be slightly different at 3.94%
They also would need something to verify that you own the business.  So that could be business registration documents, articles of incorporation etc.. I'm sure you would have that.
Since they proposed this late today I don't have any paperwork from them yet to see the full terms but that's the summary they gave me to see if you would be interested.  If you needed to use any money from a credit facility to cover any part of the down payment or legal fees they are ok with that as well.

While I was waiting for updates today I did engage another lender in conversation about your file to see if there was any interest.  I realize time is running out but also thought we had to give this every chance we could.
The lender I was speaking to was TD.  Since you have a lot of business with them I thought they might be willing to help.  Based on my conversations with them they sounded very interested and wanted to have a chance to get this done for you.
They advised me they would have an answer to me sometime tomorrow morning.
So if they come back with an approval then they will have all he documents and there is a chance it could come together very quickly.

I know you had indicated the deal needed to be funded by end of day tomorrow.
I was hoping that if we could at least get to the point that everything was solid and ready to go to the lawyer that the vendors would continue to work with you.  It won't take long once it gets to the lawyers office.

So if you are interested in Equitable Banks offer let me know and I can have advise them to proceed tomorrow.
Also, based on what TD was saying today they may have a good option tomorrow too.


So, these bastards at Equitable are supposedly concerned about my income and ability to pay. No matter what I send them, they cannot get satisfaction. So what do they do? With a day to go, they come back offering a deal with a higher down-payment, and they are completely fine if I go and borrow the entire 15K on Visa, knowing full well that what this will do is create another debt that will require at least $700 a month in payments. So in other words, they are concerned about my ability to pay them $600 a month, even with a small cash buffer in the bank, but they are not at all concerned about my ability to pay $1,300+ a month, with absolutely no cash buffer in the bank, because they took it from me in the form of a higher downpayment. Sound insane? It isn't if you remember that there is no honour among theives. I'll explain.

Equitable only cares about itself. They know that Visa cards are unsecured debt, and that if they squeeze me for more downpayment at the 11th hour, I will probably give in and borrow the rest on Visa because I'm desperate. They know that if I run into problems paying that much debt, I will probably default on my Visa before I default on the mortgage. So even if they have legitimate concerns about my ability to pay, they are quite willing to put my credit rating at risk, and possibly my card issuer at risk, as long as they get their money. It is sick. Just sick.

So, while I am deeply thankful that this situation will soon be resolved, and Steph and I are both touched by the outpouring of support we have received from our friends, this does not change my opinion about the system, or the disgust that I feel. It will be a long time before I am over this. I read an article yesterday about how the government's tightening of mortgage rules is creating a "debt bubble". It is a typical story about how the government, in it's zeal to solve a problem (the housing bubble) that it created (through artificially low interest rates), takes action that doesn't really solve the problem, and just creates new ones. People need to have somewhere to live, and rightly or wrongly, most people past a certain age do not want to rent. So it follows that people will do whatever it takes to buy a house and get the loan they need. The result? The growth of a whole lending industry that operates outside government regulations, and takes advantage of people who do not necessarily understand how unfavourable these financing arrangements really are. The result is a lot of misery, and a rise in personal bankruptcies. People either get mortgages at ridiculously low rates, or they wind up paying obscenely high rates. But in no way are the consumers actually protected.

It is really time for an overhaul that takes the big economic picture into account. By all means don't let people who make 100K a year buy million dollar homes - because those people really can't afford it. But don't disqualify people who are currently renting from obtaining mortgages when the mortgage payments, plus utilities are equal to or less than they rent that they have an established track record of paying. Stop treating us like children. Responsible adults will chew through bricks if they had to do it to keep their family home. Yes, some will default, which is why we have mortgage insurance and why banks can seize and sell defaulted homes. But making the rules as unreasonable as they are, and biased in favour of salaried employees, they are locking a lot of very deserving people out of the housing market, and this is not good for the overall economy. People who plant roots and establish a home spend more - on their home, and in their community. Maybe that shouldn't be so, but it is a fact. Just look at any neighbourhood where predominantly all the houses are owned, versus one that is mostly rental. Which one looks better? Which one has a wider array of local businesses? One of the reasons is control. I've rented in places I've loved, only to be told 6 months out that I have to move because the landlord wants to sell the place, or move their nephew in. How willing will you be to invest in your community if you know that you could have to move two months down the road?

That brings me to the end of my rant. Hopefully the next time I write, it will be from my desk in the office of our new home.

1 comment:

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