The Housing Market -- Up Close and Personal

My parents are moving to Chicago to be in an independent living place. We are thrilled for them that they found a place that everyone likes, including my mom.

Their house is on the market – we put it on priced to sell. It’s on for $100,000 below the appraised value.

Here’s the thing: they can’t move into the new place without either selling the house or getting interim financing. So, I decided to visit some local banks to talk to them about our borrowing need. Yes, in this market. I felt like a walking statistic.

I visited with 4 banks – and basically told them that we wanted an interest only, two-year term loan (bridge loan?) of a certain amount, secured by the house. I also communicated to them my parents’ investments and monthly fixed and investment income. Here’s the outcome of those conversations:

Bank #1: The woman was delightfully friendly, but informed me that the only type of loan or financing they could provide was a home equity loan and because the house was on the market, she couldn’t provide it. Apparently, if we had asked for this before the house went on the market…no problem. She went on to explain that a home equity loan was considered to be a long-term loan and the bank was afraid that they would lose money on the loan if we sold our house next month. I offered to pay a pre-payment penalty. No can do, she said.

Bank #2: I went to the bank where my parents had done business for over 30 years. “Oh, you want a home equity loan? I’m sorry, we don’t do those if your house is on the market,” the bank manager said. Really, I thought? Because I spoke to someone else in your bank who was willing to write the loan for me – I even have the papers – but am not interested because the loan rate was prime + 2. That’s too much. Oh yeah, and I can’t stand that the guy calls me “hon” whenever I call.

Bank #3: This bank is a newly-formed local bank. I went to speak to a loan officer in my hometown, based on a referral I received from Bank #1. The guy listened intently to my story, told me of another customer he had helped in a similar situation, and went to find out whether he could obtain the approval to do the loan (because the house is on the market.) They are willing to do it. I’m thrilled – and their rate is below prime. He gave me the application form and told me that they could have an answer to us in a week. I now understand the value of “going local.”

Bank #4: I was tired and hungry (it was 3:30 pm and I hadn’t had lunch) but I decided to go to one more bank. So, I walked in. This bank was a little scruffy, and dirty, but the woman at the information desk was friendly and helpful so I didn’t mind. She brought me to the bank manager, a plump, unkempt woman, obviously a smoker. I thought to myself: don’t judge, she could be “the one” and, sure enough, she was great! I watched her face intensely focus as I was explaining the situation. She told me her bank wouldn’t do a home equity loan if the house was on the market, but that if I would take the house off the market for a week before I called her, she would write up the loan and it would take 2 – 3 weeks to get it approved.

So, there you have it. One bank with with an unequivocal “NO”, one bank with a "yes" and a "no", one bank with a creative approach and a banker with enough common sense to see that she could find a way to do a loan and make money for her bank (and help us in the process). I was so unimpressed with the lack of creativity and business initiative of these banks, and their bureaucratic bankers. It’s no wonder that the banks are in trouble. What I found was that if they didn’t have a bank “product” that met my need, they were unwilling, or unable, to help me. Don’t they understand that the market has changed? They still have a policy on the books that they can’t do home equity loans if the house is on the market because they are afraid that the house will sell quickly and they won’t be able to get a return on their money.

Hey banks – I have some advice for you. Instead of finding ways to say “no” and losing out on making some money, why don’t you look for a way to make such a loan profitable for you? All you have to do is to impose a pre-payment fee. Make it 1%. That will more than cover your costs and still allow you to make money on top of that. Wake up!