Sustainable Retirement #10: The Usefulness of Other Peoples' Money
From the beginning of our adventure, to find and sustainably restore an historic home to iive in during retirement, we've known that financing our dream would be complicated even with our credit history and net worth. During the
consumer financial services phase of our project, we've encountered a number of lenders with various proposals to finance some or all of the project.
What we learned from those encounters told a story about consumer financial services in America today, as regards to real estate anyway, a story of a class-stratified system with remarkably little transparency and many opportunities for lender coercion. Anyone interested in that story should step into the tall grass.
Once upon a time, in a deep, dark forest, there were three money lenders interested in lending on a mortgage of a historic home in St. Louis, Missouri that Goldilocks' Avatar, LeftOfYou, intended to buy and remodel as a retirement dream home, sustainably. There were no clear paths through the tangled forest where Goldilocks wandered, lost and alone. Here is the story as told later:
The first money lender was a big hulking monster of a creature, but certainly rich enough, one of those handful of remaining banks like in the picture, you know, free-range banksters. It didn't seem like a bad idea to deal with a bank that had a local footprint both where I lived and intended to consider refinancing and in the other state, where I was buying the rehab house. But the bank wanted costs that made me decide against refinancing with them and they slotted my St. Louis project into one of their product cubbyholes that could never have worked with our historical rehab requirements. Everything was compartmentalized. I got to ride along for a while and see first hand how they shunted America's middle class consumers like me through their sales and production workforce, without anyone ever coming within fifty feet of someone you could call a bank officer. Their demands for documentation and verification were damned near proctological. I was put in mind of the department stores I remembered from the 1950's with all the business whizzing around in pneumatic tubes. They made me feel like I was in one of those tubes. The big bank's porridge was way too cold.
Later, I encountered another pretty big money lender in a little glade in the woods. This one seemed more friendly. It was online and on the phone and by emails and texts and it had a feeling of convenience to it. Instead of rigidly gripping just one product, like the bank did, this lender jumped around all over the place with the self-styled expert on the other end of the line grasping to make one product or another fit my stated intentions, and failing time after time. In the end, the online lender issued a commitment to finance purchasing the property as a vacation home, which may not be strictly legal, according to one of my advisers. Thank you. No. The online lender's porridge was way too hot.
Then I stumbled out of the forest, where, before me, lay the golden shores and mid-rise, suburban trappings of a small, private, state chartered, commercial bank, providing bridge financing to close the purchase of the property and construction financing for renovation expenses, all for competitive interest rates and fees much lower than those asked by other lenders. The small commercial bank's porridge is just right.
But, most people can't get that kind of porridge. The LeftOfYou household only briefly and temporarily has the financial standing to get this sort of financial service. But we're merely middle class professionals. The truly rich typically grow to expect fast and ready access to commercial credit and bankers, on demand. But most consumers aren't rich. Most consumers never try to buy a home. If they do, their choice of lender is most likely between the back door at a demanding and dismissive big bank, or the pushy and unscrupulous and shadowy voice on the call from the online lender.
Our recent encounters with today's world of real estate financing didn't involve anybody directly breaking any rules that I know about. But some sure played fast and loose with a lot of them, especially in terms of supplying ridiculous numbers in required disclosures. There was also rank incompetence, like a credit analyst who couldn't read a pay stub. The commercial banker, by contrast, was smooth, working fast and seamlessly, requiring only a financial statement and past tax returns, and we got to deal directly with one bank officer and his assistant.
We learned that there is a world of difference between the kind of service and product that is available to some people, versus what is available to everybody else. It is yet another artifact of what John Edwards once called Two Americas. One for some. Everyone else take the hindmost. Ironically, those left with the hindmost pay higher costs for lesser service.
I got a glimpse recently of how consumer financing works in America for most people who want to buy owner-occupied real estate. To most consumers who need a home mortgage, the home mortgage industry is a giant and monstrous creature, having many faces, and most of them aren't very pretty. Everyday that monster gobbles down consumers, when no one is looking.