For millions of Americans, getting a mortgage means running a paperwork gantlet
Years after the financial crisis, credit is still tight for some “Banks are so scared … they are triple-checking every single thing”
Ruth Paloma Rivera just bought her first house, a three-story building in North Philadelphia. To get there, she had to push her way through a paperwork obstacle course.
One bank wanted a copy of her diploma from Rutgers University. It asked for years of telephone bills, she says, and a letter from her credit union to ensure she was in good standing. Because of a mistake on her application, the bank also requested verification of her permanent residency status. Rivera, 29, was born in Puerto Rico, which makes her a U.S. citizen. “It has been a really long, daunting, hard process,” she says.
Her experience, and that of millions of other Americans, is part of what Federal Reserve Chair Janet Yellen calls a “headwind” for the economy: Even with low mortgage rates, it’s hard for many to get a loan. Homeownership— one way Americans build up wealth— has become more elusive. The homeownership rate fell 5.1 percentage points from 2006 through the end of 2015, to 63.8 percent.
There are multiple causes of tight credit. Bad mortgages were at the epicenter of the 2008 financial crisis, and lenders are more guarded about risk. Regulation has also gotten tougher. The 2010 Dodd-Frank Act directed the U.S. Consumer Financial Protection Bureau to establish standards for mortgage underwriting, requiring banks to verify a borrower’s ability to repay.
Some banks are simply stepping away from riskier borrowers. JPMorgan Chase recently told investors its mortgage originations fell in 2015, to $106 billion from $166 billion in 2013. Only 16 percent of its borrowers had a loan-to-value ratio of 80 percent or higher, vs. 39 percent in 2013, suggesting that JPMorgan wants borrowers to put more money down on a house. Elizabeth Seymour, a spokeswoman for the bank, declined to comment.
“Banks are so scared right now, they are triple-checking every single thing,” says Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute in Washington.
Borrowers were deeply scarred by the recession, too. “While people are back to work, they’re not at the income level they were seeing before the crisis,” says Patricia Hasson, president of Clarifi, a nonprofit credit-counseling service in Philadelphia. That, plus previous debt loads, makes it harder to meet banks’ requirements.
Rivera accumulated $27,000 in debt to get her degree and graduated in 2010, when the U.S. unemployment rate was 9.5 percent. “You couldn’t even get a job at McDonald’s,” she says. She found work as a substitute teacher but eventually had to stop paying her student loans because she wasn’t earning enough to cover them and her other expenses. Her credit score plummeted. A wake-up call came when she applied for a credit card to buy an Apple computer. She was denied. “That summer I started my credit journey,” she says.
Her goal was bigger than a new Mac. She’d watched people with money move in and boost property values in Philadelphia’s Fishtown neighborhood. Rivera wanted to own something, see it grow in value, and then own something more. She would start with a bet that gentrification would spread beyond Fishtown—with its craft-beer pubs and coffee shops—into the nearby neighborhood of Kensington.
To get a loan, Rivera knew she’d need to improve her credit score. She moved in with her mother to cut expenses and opened a credit union account without a debit card, to make
cash withdrawals more difficult. With some urging from advisers at Clarifi, the credit-counseling service, she paid off one $1,000 college loan and began making the others current. After about 18 months, she says her credit score crossed into the 700s, a level lenders say denotes a good risk.
She found a house she knew was “the one.” But as collateral, it would worry some lenders. Its stairs were dangerous, and the basement was damp. The doors, floors, and walls all needed fixing. She’d have to use part of her loan for home improvements. Rivera tried to get a mortgage with
Meridian Bank in Plymouth Meeting, Pa. In addition to requests for her diploma, Meridian asked for details on permit, labor, and materials costs. It also wanted the information about her citizenship. Tom Campbell, a Meridian senior vice president, says specifics on renovation costs are required by government guidelines for the type of loan Rivera wanted. The bank also had to establish her residency status because of government loan guarantees, he says. Boxes in the citizenship section of her application were mismarked, and the underwriter asked about it. Campbell says it’s common for a lender to ask for proof of college attainment from borrowers who’ve held multiple jobs, as Rivera has.
“We sit here and constantly complain that we have to put people through the wringer,” he says. He added that his bank provides loans to many lowincome borrowers.
Rivera switched banks. Fearing she’d lose the house, she paid the seller rent to keep the home off the market, even though she wouldn’t be living there. She kept the lights on and a radio playing in the kitchen for a few months to ward off thieves who steal copper piping and wire. On March 18 she got a loan from Quaint Oak Bancorp, in Southampton, Pa., and closed on the house. “I really want it all,” Rivera says. And by all, she means the empty lot next door, several more nearby, and, most of all, a foothold in American capitalism.