Los Angeles, CA

Wednesday, September 02, 2009

We're led to believe the big banks have their act together and are systematically solving their real estate financing problems. Yet evidence suggests they may be scrambling behind the scenes to avoid being overwhelmed by the challenge. One attempted refinance by a credible borrower provides a hint at the degree of disorganization that may be behind the mask of reassurances.

Gene Siciliano, a Los Angeles based Financial Management Consultant, has been working with a client to secure some equity based financing and discussed the process. "My client, an officer and 50% shareholder of a well established, 35-year old small business applied for a home equity line of credit to Wells Fargo (WFC), the bank that carried his first mortgage. What followed over the next 3 months could make you laugh or cry:

1. His request was denied within 24 hours because of incorrect assumptions by an underwriter who didn't take the time to call and ask.

2. His contact at the bank admitted that he didn't understand much of the information being requested (and soon no longer worked for the bank).

3. The borrower was told his loan request had been assigned to the bank's (higher cost) finance division and his credit record was again pulled by them.

4. His request was reopened and approved 3 days later – by the bank, not the finance division.

5. He received a checkbook and debit card for his new account.

6. He was told his beach community property needed more flood insurance (which he purchased, despite the fact that there had never been a flood in the area).

7. His application was denied again because his company had lost money 3 years ago, so his salary that year didn't count as income. True story, I couldn't make this stuff up."

If you thought the credit crunch was only hitting those that were struggling to make their monthly payments, guess again. Siciliano notes "The would-be borrower in this case was not in any difficulty, was making monthly payments on time, and will be fine without the line of credit. But what if he really needed the money? What about all the other borrowers that may really need help? Is this the way we can expect our banks to perform during the recovery? Something to think about if you're looking for a new bank or a new loan."

Banks everywhere are trying to understand how to adjust their practices to better manage risk without losing good business, and sometimes they make unwise decisions as a result. This may be especially true of those banks still under the federal bailout umbrella. Siciliano says "Bank customers will need patience for the near future as their banks get healthy enough to get back to making balanced credit decisions."

Mary Baldwin DeHaven

Public Relations Director

Western Management Associates

Los Angeles, CA

310-645-1091

First Url: Gene Siciliano

Second Url: CFO for Rent