Why Banks are Declining Loans More and More!

Does Fannie Mae and Freddie Mac mean anything to you?  The majority of loans that default are typically bought by Fannie and Freddie (government agencies).  Once F&F buy the loan they try to arrange some kind of payment plan or it goes to foreclosure.  The problem for the banks that accept and underwrite these loans is if Fannie and Freddie find problems with the way the loan was underwritten and ultimately approved they could force the original bank to repurchase the loan and take the responsibility of the default back.  This is quite frightening to the banks therefore causing them to be much more reluctant to write loans that have any hint of potential problems.  In an environment where default has been rampant the microscope is clearly front and center.  This does not mean NO loans are being approved just that the more complicated may be declined or pressed for more and more documentation.  Even with high scores and great income there could be declines based on other financial information.  Don’t blame your banker for more information requests they are the middle man between you and the bank.  The first thing they want is the loan to be approved and to make their clients happy.  The last road they want to go down is dealing with a frustrated client and a reluctant underwriter.  Clearly that is like being “between a rock and a hard place”.

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