In the 9 years that I have lived on Miami Beach, I have always rented instead of buying a home. To me, it was simple math, my rent was less than the combination of property taxes and condo fees—I felt like I was way ahead, even before considering all of the other expenses of property ownership like maintenance and insurance. Unfortunately, this hasn’t always been a seamless leasing experience. Over those 9 years; I have had my landlords sell the places I rented five times now. Let’s just say that I’m starting to get a bit too old to continue moving every other year like I am still in college. At long last, I have decided that the time has come to purchase a condo.
Now, don’t email me to tell me it’s the top of the market—I presume that it is. Even if it isn’t, I certainly missed the bargains of 2010. In any case, your home is where you live, it isn’t meant to be thought of as an appreciating asset—it is a store of value that is resistant to inflation, like gold that you can live in. If I have to pay a bit too much, I’ll just deal with it—at least the Federal Reserve’s insane QE policy will let me finance a good portion of it at generationally low interest rates—or at least that’s how I assumed it would work. Imagine my surprise when I learned that most banks won’t lend to me.
For thousands of years, borrowing money was based on your credit history, your personal assets, your standing in the community and the sort of asset that you are looking to purchase. These were the logical pieces of information that a lender needed in order to lend. The real question was: can you pay us back?
Fast forward to the new QE era of irresponsibility; no longer are you a person. Instead, you are a bunch of metrics. No one cares who you are—or even if you can pay the money back. In the end, it’s not their problem. Instead, the question is: can we fit your mortgage into an MBS? You see—the bank will only own the mortgage a few days. You are going to be packed up with other mortgages and sold (probably to the Fed). It is this sort of numbers based lending that led to the whole financial crisis last time—banks didn’t care what they underwrote, just that it fit the model.
Fast forward to my situation; I should be one of the lowest credit risks possible. I have no debt—not even credit cards. I own lots of assets and have an impeccable credit score. Ironically, no one wanted to lend to me—I don’t fit into their matrix. Over the years, I have tried hard to report minimal taxable income, with a few big years sprinkled into the mix. My job as the CEO of a public company is unpaid (the bankers were baffled by that one). Ultimately, they told me that they were unsure how I’d be able to pay back the loan as I didn’t have recurring income. The idea that my assets are nearly 100 times what I was looking to borrow did not interest them in the slightest bit. They only cared about current income, because that is what the matrix asked for.
I finally settled on a community bank at 5% for 20 years with a 55 Loan-To-Value. Those are embarrassing numbers in today’s age of free credit—my dog could probably qualify for better rates. The banks designed a system where they passed responsibility to someone else. They stopped caring if you could pay them back. The secret of lending, is to get paid back. If the banks have not learned that, we are on the road to another crisis like the last one…