Life of Riley Index

Analysts greeted the tiny May increase in existing home sales with minimal cheer.  I guess they were looking for something more dramatic.

In fact, they didn’t understand the meaning of the little uptick.

It was a miracle. It is miraculous that any homes are sold in America.

The same generous folks who lent so much money during the boom--- the same people who inspired the phrase “NINJA loan,” for No-Income, No-Job, no-Assets--- are now exercising so much diligence that it is a miracle any home sales close. Sales would be much higher if lenders could do what they are unable to do--- make intelligent lending decisions.

I say this from traumatic experience, having just bought a house in Dripping Springs, Texas. Here’s the story.

My wife and I have spent most of the last 5 years in Santa Fe, NM. Friends are happy to visit because, well, Santa Fe is a great place to visit if you can’t manage to live here full time.

Then one of our children moved, with two grandchildren, to Austin. We came to a simple conclusion: Hill Country plus grandchildren trumps Santa Fe. We looked for a house during a five-day visit in May. We had one under agreement when we left.

Since the Santa Fe house might not sell quickly, we limited our Hill Country search to homes priced at a level for which we pre-qualified. A lender approved our application quickly.

All we needed to do was provide the necessary supporting documents. That should be a slam-dunk, right?

Wrong.

The first request called for 15 types of documents, some with multiple parts. I dutifully assembled them and sent a large package by FedEx, feeling guilty for contributing to the deforestation of Georgia.

Eight days later, we received a second request. This one for 10 types of documents, some with multiple parts. One item: a letter explaining why we were moving from New Mexico to Texas. It raised a serious question: Should I say one reason is named Nathan and another is named John Taylor? I assemble the documents and send the package. No more could possibly be asked.

Wrong.

Twenty-two days later--- and only ten days to closing--- the loan processor e-mails me about getting through underwriting.

The Underwriter is a mysterious person I am never to see, know or contact in any way. The Underwriter needs an additional 5 documents.

At this point I am starting to feel like the Land Surveyor in Kafka’s “The Castle.” It is not clear how I will ever get to the Castle, but the Underwriter has something to do with it. I assemble the questionably necessary documents and send them off. My wife and I seriously discuss walking away from the whole deal. We could wait until the Santa Fe house sells. Then we could pay cash.

Three days to closing: The Underwriter is still mulling the documents. More questions must be answered.

On the eve of closing there are, yes, additional requests for documents. Fortunately, they were already provided in rounds one, two or three.

By this time both my wife and I don’t care if we close. We also have a new concern: If this is a sample of reformed lending, the grandchildren may be bringing their children to the Santa Fe house because we’ll still own it.

Finally, we close--- but funding is delayed until hours before we are on a plane back to New Mexico.

My wife and I have taken blood oaths that we will live in a tent rather than finance another house.

No individual human beings are villains in this story. Not the loan officer, the loan processor, the real estate brokers or the title company people. All were straight up professionals trying, very hard, to do business. They were confident because they had a top-rated borrower with multiple sources of income and a high net worth.

So what’s wrong?

There is no way you can accumulate enough paper to substitute for human judgment. The No-Paper system didn’t work. It created the housing crisis. The Infinite-Paper system that replaced it doesn’t work either. It will extend the crisis.

Please share your home finance horror story in the comments below.

On the web:

Sunday, August 10, 2007: The Nitwit Sector

About Franz Kafka’s “The Castle”