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”

Bloomberg Businessweek (Europe) - - NEWS - The bot­tom line For buy­ers who have strug­gled fi­nan­cially since the re­ces­sion, low rates aren’t al­ways enough to put a mort­gage within reach. Edited by Pat Reg­nier Bloomberg.com

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. Craig Tor­res

When Rivera ap­plied to Merid­ian for a mort­gage, it asked for her credit rat­ing, util­ity bills, proof of res­i­dency, and her diploma

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