If you go to apply for a mortgage, you will suddenly encounter the REAL hunt for money. My sister just bought a house and to get the mortgage she had to explain every deposit and cash withdrawal in her account going back 5 years. My mother had simply written her a check for $400 to reimburse her for picking up some medicine. They wanted her to explain why my mother gave her $400.
Another friend who lived with a girlfriend for 5 years and shared an apartment encountered the full fury of the government’s hunt for spare change. His girlfriend had written him checks for half the rent for 5 years. Every one of those checks had to be explained before they would get a mortgage to buy a home together.
This is completely illegal, yet banks are complying. This is all under the pretense of TERRORISM whereby they have to know where every penny goes. This is not applying a new law with notice that from this date forward you have to keep track of everything you do with anyone else as in East Germany Stasi, this is being applied retroactively. The banks then report that info to the IRS and if you lie somewhere they will convert that to perjury and threaten you with 5 years in jail. My sister would withdraw $2,000 in cash every few months for my mother for incidental purchases. Every one of those cash withdrawals had to be explained. This is between family member – there is no pretense of TERRORISM. We are watching all our privacy and right vanish before our eyes.
It is no longer good enough that you pay your taxes. Now they want to know to whom you are giving any money right down to $50. As a matter of law, if I pay a lawyer for work, I must issue a 1099 to document I pay him any fees. They are tracing every dime.
This sort of red tape will come into play seriously capping real estate in the housing market. We should expect prices to peak out in general for this asset class is being hunted. It may be that the high end holds up better. But the low end that needs a mortgage to transact, will find it increasingly more difficult as the economy turns down, rates move higher, and banks back away from long-term loans.
Cash is rushing into the short-end. The long-end is starting to falter. This should be the same for most real estate markets. This is a 26 year high in Switzerland as well and the rush for condos in Toronto and NYC should top out on this wave where prices depend upon mortgages. Expect the core real estate to peak out with this wave that requires mortgages. This type of unconstitutional tracking of money will eventually discourage people from getting mortgages and as buyers are discouraged in the USA, they will move elsewhere. Caution is advisable.
Funny, I just got a new mortgage a few months ago and the process was basically the same as in 2003 and 2006. Document your income and assets, sign a ridiculous stack of forms, wait for a week and -voila- mortgage approved. And I have more varied and substantial account transactions than described in this essay.
The housing market may be slowing to a crawl or worse, but I don’t think a “war on cash” is part of it.
Yeah, I think Armstrong’s stint in fed prison fucked him up. His articles are very hit and miss.
I had to explain a couple of cash transactions back in 93. I refied twice after that and was never asked about anything. I think the goal is to make sure you’re not borrowing $$ on the side and weakening your debt to income ratio they are basing your loan eligibility on.
Afraid I have to agree with Pers and ID. Refinanced a year ago or so and never even had to talk to anybody. All by mail, no hassle. Could be this stuff is hit or miss. I send money all over the place for all kinds of reasons and have never had the slightest problem. Hell, the IRS THREE TIMES corrected my income tax in my favor! Got $1000 checks from them each time. One time I made a mistake but they settled it as soon as I explained the situation. I am lucky I guess, or maybe it is my secret Illuminati decoder ring…………….
Agree with comments. In any case, the real estate industry is exempt from the stringent AML procedures that apply to banks, securities and commodities firms, money service businesses, casinos, and sellers of big-ticket items such as gems and automobiles, and even insurance companies, thanks to intensive lobbying from the NAR.
I would submit that the lender this sister applied to is suffering a lot of loan losses and is having regulatory problems. A friend of mine encountered similar strange obstruction and nitpicking when she and her husband, a well-heeled doctor, applied for a loan on an expensive house in an exclusive Philly suburb. They had excellent credit, a high income, an excellent history of paying their mortgage on a previous home, and had a 35% down payment, but the lender put them through dozens of hoops, asking where my friend, a stay-at-home housewife, went to college. Find another lender, I told them, that one sounds like it simply doesn’t have a lot to lend. A smaller bank ,especially, tends to get really tight when its bad loan losses start multiplying and it is on the edge in meeting its net capitalization requirements.
The housing market is not “going” to crash- it already is deteriorating, but not because credit has become too tight. If anything, it is not tight enough. Only the high end, and only in certain “hot” metros, is doing really well, thanks to uber-wealthy foreign buyers who pay in cash and whose money is not scrutinized too closely. We are still stuck with the blowback from the crash of the 00s. Right now, the wave of HELOCs written 2004-2005 are resetting- for the past decade, the borrowers have had to pay only interest on these badly underwritten loans, but will now have to pay down principal as well, which means that payments will double and even triple for most of these borrowers, many of whom are underwater on their first mortgages, and who will not be able to either make the much-larger payments, or sell their houses for enough to recover the money owed. The lenders are understandably nervous. Worse, there are still tens of thousands of foreclosures from the 00s that have STILL not been completed and fully a 3rd of all mortgage borrowers are still “underwater”. In the top 5 “bubble” metros, the combined delinquency & default rate is as high as 39% (in the NYC area). Here in the Chicago metro, it is 28%.
Given the circumstances at this time, I have to be surprised that credit is not a lot tighter, which is why the GSEs are loosening the standards for the loans that they will buy. The lenders will take no risk they cannot shift to the GSEs and FHA now.