$8 million in assets - and can't get a mortgage

By Les Christie, staff writerJanuary 20, 2010: 9:45 AM ET






NEW YORK (CNNMoney.com) -- The wealthy have money problems, too -- yeah they do.



Even refinancing a mortgage for their fancy digs or getting a new loan can be near impossible these days thanks to skittish lenders. And the higher the loan value, the more they worry.



Still, that people with high six-figure incomes, stellar credit histories and gobs of assets get mortgage requests turned down seems weird.



"It's amazing really," said Susan Bruno, a financial planner with Beacon Wealth Consulting in Rowayton, Conn., "but it makes sense when you think about it."



For one thing, many rich folks have fallen behind on their loans. About 12% of U.S. mortgages of $1 million and larger were late this fall, twice the rate for loans under $250,000 and nearly triple the default rate on million dollar mortgages 12 months earlier, according to First American CoreLogic Inc., a California-based research firm.



Hard to get jumbos

It was so simple to get jumbo loans just a few years ago. The wealthy barely had to pay a 0.2 percentage point premium over a conforming loan, according to Keith Gumbinger of HSH Associates, a publisher of mortgage information.



Lenders made the loans more expensive because they are too large to be bought or backed by the government through Fannie Mae and Freddie Mac. Today the increased risk is worth about 0.8 percentage points, although that is down from the high of about 1.8 points in late 2008.



"The pendulum has swung from one extreme to the other. Banks are going overboard," said Lyle Benson, a financial planner and member of the executive board of the American Institute of Certified Public Accountants.



That includes asking the affluent for down payments well in excess of the traditional 20%, according to Bruno. Some lenders want loan-to-value ratios to be closer to 60%, even 50%, which means putting 40% or 50% down. Or, on a million-dollar home, having $500,000 ready to hand over.



And all the other underwriting aspects of the loan have to be in place as well, something that can be difficult to demonstrate with some wealthy clients, whose income and assets can be complicated.



They could always buy a $24 million condo on Utopia

One client of Benson's, with $8 million in assets, wanted to refinance the mortgage on his primary residence.



A self-made man, he had sold a business and put much of the proceeds in a charitable remainder unitrust that paid him $150,000 a year. He took paper losses in his stock portfolio against that income, however, which lowered his taxable income. The cash flow stayed intact but the income he showed was much lower.



"The loan officer didn't understand it," said Benson, "and the bank declined the loan."



Double decline for second home

Susan Bruno has a client who was turned down for a mortgage twice -- despite an 800 credit score, more than adequate down payment and plenty of income.



The problem was that the client wanted to buy a second home. And because the client would not, could not, swear that he would occupy the home at least 75% of the time, lenders weren't interested.



"Mortgages for second homes have been tough to get the past couple of years," said Gumbinger. "A lot of second-home areas, like in Florida and Arizona, are among the most challenging markets."



Plus, defaults on second-home mortgages are often handled differently than those of primary homes. The mortgage balances, for instance, can be reduced in bankruptcy court -- "crammed down" in industry parlance -- to their market values. That can wipe out a good portion of what borrowers owe, which banks hate. As a result, they often require a 50% down payment for second homes.



All in all, the wealthy simply have financial problems that we ordinary mortals can only dream of. Take the doctor client of Bruno's with a home on 19 expensive acres of Connecticut countryside. He had more land than he needed and some time ago toyed with the idea of subdividing and selling it off.



Well, the market changed and he shelved the idea -- but only after taking some preliminary steps. Last year, when he tried to refinance his mortgage, this rose up to bite him. His bank wouldn't count the sub-dividable land, worth $8 million, as collateral because it was now a separate parcel.



"[His bank] only counted the house and a small piece of land," said Bruno. "His lenders limited him to a loan of $1.3 million."



For Bruno, that's part of a trend of lenders falling back on rules and guidelines that make little sense sometimes when dealing with the individual cases presented by some high net-worth individuals.



"There's no appropriate business judgment these days," she said.



Aren't you glad you're not rich?

Dallas MLS Residential Housing Activity

Extend Tax Credit

Washington, September 14, 2009

The National Association of Realtors® is calling upon its 1.2 million members to urge Congress to extend the successful homebuyer tax credit into next year.

Since its inception earlier this year, the $8,000 first-time homebuyer tax credit has brought 1.2 million new buyers into the market—350,000 of whom would not have purchased a home without the credit, according to NAR. The credit is due to expire November 30.

“Now is the time for Congress to keep this recovery going by extending the tax credit through 2010 and making it available to more homebuyers. We have all seen how the credit has been a spur to bring homebuyers into the market, and have seen the beginnings of a real recovery in the housing market. Housing has always led this nation out of economic downturns, and can do so again,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth.

Realtors®, the leading advocates for homeownership and housing issues, will be writing to their Senators and Representatives to tell them of the successes with the tax credit thus far and to press them to extend and expand it now.

McMillan added that the market has improved, but it has not yet fully corrected itself. “The credit needs to be available for an additional period of time in order to sustain the progress that’s been made so we can continue to see our markets fully recover. Uncertainty about the future of the credit will dampen consumer demand. The only way we can assure that the progress we've made can continue is to extend the credit and to do that now,” he said.

As the current deadline for the credit looms, potential homebuyers need to complete a contract, satisfy any contingencies, secure financing and go to closing by November 30. In today’s market, NAR estimates that it generally is taking between 45 and 60 days from contract to closing.

“That means potential homebuyers who qualify must act now, and so must Congress,” McMillan said.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

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Before a freeze:



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In sub-freezing weather:



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Open cabinet doors under sinks on outside

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If you’re not going to be home:



Turn off water at your private valve and drain

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Most of the time, private water cut-off valves

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A quarter-inch piece of iron with a 90-degree

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