I’m a big believer in possibility. In fact, I often sign off my correspondence with the Emily Dickinson quote, "Dwell in possibility." In life in general, I think too many people limit themselves and what they can accomplish by virtue of what’s possible.
So, it’s counterintuitive for me to have to say, as I so often do these days, "That’s not possible. It can’t be done."
The world of real estate, generally, is a world of possibility. The normal home sale or purchase is truly the tip of the iceberg in terms of the property types, uses and transaction structures that live in the realm of what is possible.
However, when you’re a regular homeowner with credit, property value or financial "issues" in today’s market, major shrinkage occurs in the universe of what’s possible for you in terms of what a mortgage lender will and won’t extend in the way of financing.
But no one wants to acknowledge this truth. Denial of this reality combined with an insistence on the ubiquitous "workarounds" that were in steady supply during the era of subprime lending seems to be a very common consumer mindset these days.
It seems that the entire history of what it took to obtain mortgage financing for the first 40 or 50 years of the mortgage industry has been overshadowed in the collective consumer memory by the anomalous few "anything goes" years prior to the crash.
How do I know? Because people with no jobs, bad credit, recent foreclosures and bankruptcies, etc., are still asking me about loans. And they’re still surprised, and even indignant, when they hear that they don’t qualify.
Now, funny enough, it’s generally the folks who have the most condemning, scorching commentary on the role of subprime lending in the housing and economic crisis that also turn out to be looking for impossible mortgage solutions in their own lives — the exact sort of thing that used to be provided by the subprime market.
It usually goes like this: At a dinner or party or funeral (seriously), someone learns that I’m in real estate and walks over to chew the fat about the market. They go on and on about "all those ‘slime bag’ subprime borrowers and deadbeats who walked away from their houses," the resulting crash in the value of their own home, and the fact that they have either applied for or been refused a loan modification.
Then they ask for my card. …CONTINUED
And the next day, almost like clockwork, they’re calling up to ask me if I can help them refinance their house, even though they don’t have a job and the place is $250,000 upside down, and they just walked away from an investment property last year (it was the only smart business decision) and they’ve been late on their home mortgage for the last six months in an effort to obtain a loan modification.
Psychologically, it’s a conditioned response. Many of these people are in their 50s and 60s, so I know that for the better part of their adult lives, mortgage guidelines were stricter than not: 20 percent down, no late payments of any sort in recent history, and so forth. But that subprime era truly wore a groove in our expectancies of what is possible in terms of mortgage qualifications. Sure, you might have to pay a higher interest rate, refinance in a couple of years, and have a prepayment penalty, but we’ll give you a loan! And when these folks heard that over and over again, it created the same phenomenon Pavlov conditioned into his dogs.
Everyone knows about the Pavlov dog scenario in which the dogs were trained to get a tasty morsel by pressing the lever. What most people aren’t aware of is what happens when you stop "rewarding" dogs (or monkeys, or rats, or people) for pressing the lever.
If you consistently provide treats, then cut them off cold turkey, eventually — albeit after more attempts and time than you would expect — the subject will stop seeking the treat.
However, if you inconsistently or occasionally provide treats, then cut them off, the subjects will persist in seeking it by lever-pressing for much longer than if they are totally cut off from the reward.
In the lingo of behavioral extinction studies, a partially reinforced behavior will persist for much longer than a consistently reinforced behavior — this is called the partial reinforcement extinction dilemma.
Perhaps the nature of obtaining a home loan — whether for purchase or for refinance — is more in the vein of an occasional reward, given that it’s not an everyday experience.
Or perhaps any given individual homeowner’s experience of the elimination of subprime options was more akin to a consistent reward changing to an inconsistent reward evolving to cold turkey, if you take into account that the "reward" of an arguably undeserved mortgage approval might be considered to happen every time they hear of someone they know qualifying without a perfect credit history or even though they’re slightly upside down.
Whatever the case may be, it is very clear that now, two years or so after the subprime pipeline was essentially cut off cold turkey, many would-be borrowers are still persisting diligently in seeking mortgage "rewards" — despite the fact that they are well-aware, by their own admission, of how illogical it would be for a lender to approve them for the loan.
But back to possibility. Everything still is possible — but obtaining the financing you need to execute your real estate plans might require time to plan, time to save up, time to make more money or pay off debt, or all of the above.
And it is not the case that mortgages are as hard to get as they were 40 years ago — in most cases, you can get an FHA-insured loan with 3.5 percent down (which is a far cry from the 20 percent requirements of a generation ago), a decent credit score and fully documented income.
What have been eliminated are the shortcuts and the ability to borrow far beyond your documented means. The result? A narrower set of possibilities that are more realistic and sustainable.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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