Bank's refusal defies logic

By DAVID LAZARUS

Oct. 4, 2009 12 AM PT

One reason we got into our current economic mess is because banks handed out home loans to pretty much anyone with a pulse, regardless of their ability to, you know, actually make mortgage payments.

Banks have subsequently tightened their lending practices, which is a good thing. But have they gone too far?

Glendora residents Angie Trujillo and Carl Heinzen think so. They’re still trying to figure out why they got turned down for a refinancing of their mortgage.

Before we get any deeper into their story, you should know that Trujillo, 61, is no stranger to the world of banking. She worked for Bank of America for nearly 40 years, rising from switchboard operator to assistant vice president.

Trujillo was shown the door in March, not long after BofA announced that it would be sacking as many as 35,000 employees over three years to cope with the recession.

Trujillo and Heinzen, who are married, applied for the refi several weeks before she lost her job at the bank. Considering Trujillo’s long history with BofA and the fact that their loan was already with BofA, they figured the refi would still go through without any difficulty.

But in August, they learned it had been rejected. The reason, according to the letter they received from the bank: “Income insufficient to support expenses.”

Apparently BofA decided not to take into consideration the $58,000 severance package Trujillo received from BofA along with her pink slip.

Or her $377,000 BofA pension.

Or her $156,000 in savings at BofA.

Or the $10,000 she and her husband deposit at BofA monthly for rental properties they own and manage.

Not to mention the $450,000 value of their house, as appraised by BofA for their current BofA loan of $280,000.

Oh, and let’s not overlook that Heinzen’s FICO credit score was 809 at the time of their refi application and Trujillo’s was 764, placing them among the least-risky loan seekers in the country.

Kind of makes you wonder: If people like Heinzen and Trujillo can’t get a home loan, even for just a refi, who can?

Trujillo herself wasn’t able to speak with me. When she was laid off, BofA made her severance pay contingent on signing a seven-page nondisclosure pact forbidding her from discussing anything about her former job.

Instead I spoke with Heinzen, 57, who signed no such pact and said he’s been a BofA customer since he was 5 years old and thus considers himself to have a bit of a track record with the bank.

He said BofA seemed very serious for a while about making the refi happen.

“We kept getting requests for information from the loan processor, and we kept sending it in,” he said. “We sent in about 400 pages of documents.”

But it was all for nothing. Despite all the documentation, and despite his and his wife’s impressive credentials, BofA said no.

“I don’t get it,” Heinzen said. “My best guess is that they really don’t want to make loans.”

Rick Simon, a BofA spokesman, said he couldn’t comment on a particular customer’s loan application, so he’d have to keep everything hypothetical. Hypothetically speaking then, here’s what the bank had to say:

Outstanding credit scores are just one factor in determining who gets a loan (or refi) and who doesn’t.

Another key factor is showing you’ll be able to make regular payments. “Verifiable, sustainable and qualifying income is a critical component,” Simon said.

Of course, Heinzen and Trujillo already make regular payments on their BofA mortgage, so that wouldn’t seem to be an issue. But this is all still hypothetical.

Simon said severance pay and rental income don’t count as income for loan purposes, even though they’re both income, while a pension does count -- but only if you’re already receiving pension payments.

So even though Trujillo has already qualified for her pension, and even though it’s a BofA pension, the bank won’t factor it in until she actually retires and starts receiving the checks.

Simon said these aren’t BofA’s rules. (Well, actually they are, seeing as it’s BofA making and servicing the loan.) He said the rules are pretty much dictated by the secondary market, where banks sell off many mortgages after making them.

The leading players in the secondary market, Fannie Mae and Freddie Mac, have tightened their rules since the mortgage market went haywire and Uncle Sam had to step in to bail out both firms.

“We write loans to the guidelines of the secondary market,” Simon said. “And those guidelines are now very conservative.”

This is all very weird, of course. BofA knows what a safe bet Heinzen and Trujillo are, and under normal circumstances -- that is, pre-meltdown -- the bank wouldn’t have hesitated to do business with them.

But instead, BofA is allowing Fannie and Freddie to call the shots. And if that means slamming the door on perfect customers, so be it.

One solution would be for Trujillo to start drawing on her pension, which would presumably represent the qualifying income that everyone wants to see (all that unqualified income notwithstanding), but this is apparently a non-starter.

Heinzen said he raised the possibility with his BofA loan officer and was told that it would take 90 days for the BofA pension payments to begin, and that would be too long to wait for the low-interest refi currently on the table.

Heinzen also said he and his wife are reluctant to start drawing on the pension because it would be too much income.

“It would put us in a way higher tax bracket,” he said.

I hardly know what to say. Here’s a bank that ostensibly wants to make loans to good customers. And here are a couple of customers with impeccable credentials.

But a simple refi has fallen apart because lending rules that were once catastrophically lenient are now heartlessly strict. There is no flexibility on anyone’s part to consider actual, real-life circumstances.

BofA’s Simon said the bank will take a closer look at Heinzen and Trujillo’s refi application. I’m taking that to mean that BofA will actually do its job as a loan provider and consider all aspects of its customers’ situation.

I’ll let you know how it all turns out. And if you have your own loan or refi pending, I wish you luck. You’ll need it.

David Lazarus’ column runs Wednesdays and Fridays.

Send your tips or feedback to david.lazarus@latimes.com.

latimes.com/lazarus/banks

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