As published in Scotsman Guide's Residential Edition, November 2005.
The real heroes in mortgageland are those who work in rural areas. If you work in a small town, everyone thinks you are a lender. There is little difference between a mortgage broker and a banker in these parts -- you're a dreaded lender. Everybody is related to someone whose farm was foreclosed on by a lender.
You don't build trust easily in the country. Add the arcane rules of mortgage lending, and you have obstacles that city originators would find vexing.
Take the need to verify everything. We are insanely distrustful of anything applicants tell us. City-dwellers accept this. But when you ask farmers to prove they own land, you are attacking their honesty.
I learned the nuances of small-town lending the hard way. My first rural loan involved a borrower with considerable holdings in bearer bonds that were to be liquidated for down payment. This was not easy to verify because they had no serial numbers and were redeemable upon presentation. The bonds were kept in a safety-deposit box. My customer would not allow photocopies, and purchase records were not available. What to do?
The underwriter suggested I accompany the borrower to the bank and inspect the bonds. I could then place a statement in the file that I had examined the assets personally. My customer agreed, and we set a 10 a.m. meeting.
That morning, I jumped into his car and we sped off. It soon became apparent that we were leaving the city limits.
"Where are we going?" I asked.
"To the airport," he said. "I guess I forgot to tell you that I bank in San Francisco. I wouldn't want the locals to know what I've got."
Property appraisals are another problem for rural lenders, particularly when it comes to using comparables. Before we came to our senses, we wrote a lot of memos about comps being too distant. Finally, appraisers began adding helpful comments.
I remember one Montana appraisal report that read, "Nearest comparables are 10 miles from subject property because people get along better when they are separated."
My boss penciled a note on the form, "Social commentary not needed." But when you think about it, the appraiser was right.
Investors are careful about what percentage of the property value is represented by land in the rural United States. No one seems to remember that that's the exact reason some people live in the country. These conflicting goals often get in the way of one another.
I explained to a perplexed buyer of a home on nine acres that if we had to foreclose, he could claim that his land was actually agricultural in nature, thus allowing one year for redemption.
"That's silly," he said. "What crop could I grow on nine acres and make a decent living?"
I thought about it awhile and answered, "Cannabis?"
If I worked in a small town, there are some loans I wouldn't want to write. For example, I wouldn't take an application from a minister.
Imagine if something went wrong with the file. I'd be afraid of turning up in next Sunday's sermon: "Just this week, I applied for a loan, and do you know what they asked?"
I can see the congregation turning to me with disgust. And I'm afraid I'd just have to have some fun: "Gee, pastor, got any ideas of where to send the verification of employment?"
Or, "If you're rejected and it clouds up with thunder and lightning, I'm not going to feel good about this."
Another person I would send away is my doctor. I don't want to know how much my doctor makes. I know doctors go to school a long time, but I'm afraid if I get a bill for my broken ankle, I'd say something like, "I guess that'll make your boat payment this month."
I wouldn't want to know how much my dentist makes, either. This is not because of envy, but because my dentist only works three days a week. Besides, underwriters are suspicious of people who only work part-time.
And imagine screwing up your auto mechanic's loan. Would you feel confident leaving your wheels in the hands of someone whose loan you forgot to lock?
I'm going to leave small-town lending to those with a greater sense of adventure.
Gordon Schlicke is a Seattle mortgage trainer. His after-dinner speech, "The Lighter Side of Lending," is designed for meetings and conventions. He can be reached at email@example.com or (206) 782-6839.