Mortgage Refinancing in a Covidious Time

A brief note on mortgages in a covidious time...

Back in June 2020, we refinanced our mortgage to take advantage of lower interest rates - never let a crisis go to waste and all that. For what it's worth, we went from a 4.5% 30 year mortgage to a 2.5% 15 year loan, saving something like $200,000 in interest payments.

This being America, perhaps with the savings we've made, one of our children will be able to afford a year of university when the time comes - or hopefully a semester, one can always dream (stay on topic, man, tackle spiraling higher education costs another time).

This was at the height of the pandemic and although lockdowns were lifting, vaccines were not in sight, the whole world was in upheaval. Luckily, The Wife and I still had jobs and were working from home - albeit I had taken a 20 percent salary deferral as The Company sought to preserve cash and cancelled all chip orders and such, snarling up the supply chain in the process (but I digress yet again - car company executives are not often lionized for their financial savvy, call it herd mentality in a time when we were all seeking herd immunity).

Anyway... we saw interest rates at historic lows and tried to act.

Sidenote: I had never seen a faster reaction than that of my previous mortgage broker at my "Looking to refinance" email. Left to him, we'd have sealed the deal that very day. He was hungry for my business; the global pause had brought about a great financial shock, it really seemed to be a buyer's market.

There were a few glitches, however, and where there are glitches, there is toli...

A Live Human

The first issue we encounted was when the mortgage company wanted to verify employment.

I asked my manager and he pointed me to GM's official process for employment and wage verification. As a large company, it employed a vendor to automate this process. I went along and set things up at the vendor, The Work Number, and provided it to the mortgage company.

I got the following response from the broker. Apparently, enough of the 40+ million newly-unemployed Americans had applied for mortgages just after being laid off, that all mortgage underwriting companies were tightening requirements. They were now requiring to speak to a live human to verify things.

"Unfortunately, we can't use automated verifications. The system is not current... meaning up to day to day. So the HR person will just need to verify that you are an active employee 2 days before closing. Again, it's a Covid guideline so we have to make sure you haven't been laid off."

In other words, mortgage fraud was rampant. Mortgage servicers weren't trusting any of the automated systems that were in place. A live human was needed for verification.

This was also one of my first encounter with that felicitous phrase, covid guideline. A phrase that quickly become a catch-all and authoritative, even when said guideline was sometimes questionable. Middle management and frontline staff alike could just allude to a covid guideline and all manner of nuisant rules would manifest themselves.

(Covid Guideline also sounds like the name of an indie band.)

I didn't want to put my supervisor or assigned HR partner on the spot by giving out their contact details to verify employment. That would be wrong and I didn't want to go against The Company's process.

But I was in a bind if all mortgage companies were now wanting to contact a live body in light of the pandemic. I wondered if I should try to find a different mortgage company, if one existed, that would proceed with the automated process. From what I understood however, all other underwriters were in the same boat. I briefly considered feigning cold feet with my broker just to see him sweat a little (so keen was he for my business).

The news reports indicated that this was a widespread issue

WSJ Says Banks Can’t Determine Who Is Credit-Worthy: More COVID-19 Fallout

‘Flying Blind Into a Credit Storm’: Widespread Deferrals Mean Banks Can’t Tell Who’s Creditworthy

Millions of Americans are out of work and behind on their debts. But, in many cases, the missed payments aren’t reflected in their credit scores, nor are they uniformly recorded on borrowers’ credit reports.

The confusion stems from a provision in the government’s coronavirus stimulus package. The law says lenders that allow borrowers to defer their debt payments can’t report these payments as late to credit-reporting companies.

Lenders that are having a tough time spotting risky loan applicants are approving fewer borrowers for credit cards, auto loans and other consumer debt. They are also hunting for new data sets that could indicate who is in financial trouble and how much they need to set aside to cover soured loans. The Federal Reserve last week said the biggest U.S. banks could be saddled with as much as $700 billion in loan losses in a prolonged downturn.

“Without accurate information, their only option is to pull back on credit,” said Michael Abbott, head of banking for North America at consulting firm Accenture PLC. “Banks don’t know who is going to pay and who isn’t. It’s like flying blind into a credit storm.”

Banks started tightening their underwriting standards in March, when the first wave of coronavirus layoffs began.

A year later in 2021, this low trust environment still persisted

Lenders are calling employers to confirm that the homebuyer will have permission to work remotely when the pandemic ends. Rates are lower for loans on primary residences, and the lender also wants to make sure the borrower actually plans to work after getting the loan.

Luckily for me, after some back and forth between the broker and my employer's human resource department, things worked themselves out. I was able to be verified. Our HR department found itself staffing up virtual call centers to do the work that they had previously paid good money for an automated solution from an external vendor. Live humans were indeed needed.

Attestation

Our closing ceremony was quite eventful as I've previously recounted. Interestingly, a curious document manifested itself during that process - a "Covid-19 attestation" that the notary insisted that we sign. The financial situation of millions was in upheaval; the breakdown in trust across society was complete, and mortgage companies sought to protect themselves by adding whatever they could to the closing process even if of dubious legal standing.

I affirmed that the income documentation (my last paystubs) I had provided was unaffected by "the COVID-19 resulting economic impact, and I am not aware of any future changes in my employment status and/or income that will affect my ability to repay my loan".

As I signed, I questioned how the mortgage company ever hoped to enforce that attestation and what value it would have if indeed my income did change dramatically. Perhaps someone can enlighten me. What actual use is that Covid-19 attestation in legal terms? Force majeure is what it is, attestation notwithstanding.

From what I understood, the majority of fraud in the US during the covid years concerned repayment of covid relief PPP loans. I was a little surprised that even garden variety real estate mortgages were similarly precarious.

I believe things are stabilized four years on, and that there has been a return to the normalcy. The credit environment and the mechanics of the mortgage process have adjusted. Higher interest rates will cool excess exuberance, I suppose. Colleagues that refinanced last year inform me that our company's automated employment verification solution was accepted. The Covid-19 attestation endures however...


...

The New Process

Speak to a live human
And sign the attestation
So go the covid guidelines

Attestation, a playlist

A soundtrack for this note (spotify version)

• Attestation by Manifest
• Human by Human League
• Truth and honesty by Mica Paris
• Trust and Believe by Keyshia Cole
• Human nature by Michael Jackson
• Attestation by Peter Martin
• Verified by Your Favorite Martian
• Attestation by Quartier Danger
• Glitches by Amel Larrieux and The Roots

...

(I'm revisiting some of the notes I jotted down in the first years of this ongoing pandemic, do let me know if you find them useful)

This note is part of a series: In a covidious time.

File under: fraud, process, mortgage, housing, risk, finance, crime, USA, culture, observation, perception, bureaucracy, trust, economics, automation, law, covidious, toli

Writing log: June 21, 2020. January 13, 2024

A Debt Foretold

Asked if she would use a credit card if one were given to her, Ms. Zhang looked confounded. "What's a credit card?" she asked, adding, "We have everything we need."

— China's Economy, in Need of Jump Start, Waits for Citizens' Fists to Loosen

Indeed, I ask. Indeed. Ms. Zhang has vocalized the existential question of our age. What's a credit card?

Everyone is asking similar questions these days. "What's a bank?", for example, is something that markets the world over are pondering. We're finding out that there are many things that are bank-like entities — from insurance companies through mortgage companies to even car companies, and others, nominally called banks, that had very odd ideas about what a bank was actually supposed to be or do. But I digress, let's stick to the matter at hand: what's a credit card?

Well the credit crunch hit home in a minor way last week. The message, delivered in a plain white envelope, was resonant in its simplicity:

Dear Mr O. Amaah

We are writing to you because we noticed that this credit card account hasn't been used for at least [redacted] months. We believe this may indicate that the account no longer meets your financial needs. With this in mind, the account has been closed.

[redacted closing pleasanteries]

So there you have it, ever so pithy. It kicked the bucket; there's one less credit card in the world today. A little piece of plastic was duly snipped, shredded, and recycled. And that was that, you might say. Still, there's a tale lurking behind that note, a petit divertissement perhaps, an object lesson about the current global reassessment of risk, or if you are so inclined, a parable about the meaning of credit. Consider the following credit card toli a chronicle of a debt foretold...

My introduction to Generation Debt (USA edition) was with a First USA credit card that I signed up for sometime in 1994 in order to finance a conference that a bunch of African students decided to put on that year. Not being favoured sons and daughters of Harvard, donors were not being forthcoming with spare change to help our efforts. But we were bloody minded enough to want to put Africa on the university's agenda, for a weekend at least — we knew our limits. So I picked up the three credit card applications that had been crowding my university mailbox, filled and returned them in their glorious postage-paid envelopes.

I have to admit, I was shocked when a sleek credit card duly arrived in the mail a week later. I was doubly shocked when I saw the number of digits in the credit line assigned to me. I still can't believe that a bank would extend almost $12,000 of credit to a mere African student who was earning $8.50 an hour working weekends as a dishwasher in the Harvard dining halls. Well, this meant that the show would go on, my $300 bank balance be damned. I dug this plastic exemplar of American bravado. Sidenote: one of the other applications had been promptly rejected, and after a longer period, the third was approved (with a credit line of $500).

Incidentally the first purchase made on this card — and the card's claim to fame, was a plane ticket for Ellen Johnson-Sirleaf to bring her to the conference. At that time she was a humble bureaucrat at the United Nations Development Program who, if I remember correctly, had initially suggested that she would even contemplate driving up from DC if we could find someone to car-pool with her... You'll recall that Liberia and Sierra Leone circa 1994 was prime warlord running riot material. She, in contrast, simply wanted to talk to the students. How refreshing.

Anyway, the eventual budget for the conference was around $22,000 of which approximately $15,000 was put on credit cards that were bestowed on yours truly over the next two months.

Now I see you shaking your head. I understand. It's OK, go ahead, shake your head, titter away. I can handle a lot of head shaking, rolling of eyes and the like. I certainly am shaking my head as I remember the things I charged on that card. You see, thrift runs deep in my family. Further, there's a certain conservative streak and reputation that is very much belied by this, my first encounter with a credit card. In mitigation perhaps, I'd note that I was just a year past the sophomore stage so you could place this anecdote under the banner of youthful indiscretion.

Returning to our original question — remember we're trying to clarify things for Ms. Zhang — what can we say so far?

Well a credit card is claimed to have something to do with meeting financial needs — that is what my credit card company suggested even as they terminated our dalliance.

The anecdotal evidence also shows that a credit card is something that changes one's relationship to risk, and indeed risk assessment.

A further reality illustrated here is that a credit card is something that allows sophomoric impulses to move beyond mere bravado to full-blown fiscal train wreck, all within a 25 day (or 20 day) billing cycle - for these things can change at little notice per the small print.

It turns out that there's nothing like having $15,000 bills to concentrate the mind - well at least to concentrate my Ghanaian student mind. It also turns out that, statistically speaking, credit card debt doesn't concentrate the minds of most Americans - students or otherwise. It must be a cultural thing. It is confounding, isn't it? A credit card is a puzzle.

Suffice to say that I sweated a lot for the next few months as I applied to various funding sources to try to get reimbursement so that I could pay off my credit card bills. That $15 minimum payment that was cheerily suggested to me seemed a little out of proportion to the actual bills in question, on the order of a thousand times the amount of said bills. A credit card is a hassle.

If you were in Cambridge in those heady months and had even a faint whiff of money about you, you would have made my acquaintance. The idea was that I'd beg, steal or borrow to repay this debt. I visited more foundations, Harvard-affiliated or not, wrote more letters, made more phone calls, appeared in more student council meetings or board meetings, than I care to remember. I discovered reserves of argumentation and negotiation skills that I never knew I possessed. Some looked for polish in the presentation and others wanted you to dance for the money. I had no shame, and was chameleon-like in my affectations. For a surprisingly large number of organizations, it appeared that it paid to look very skinny, malnourished, child-like and/or poor - there's a certain image of Africa that loosens wallets. Normalcy wasn't a feature that they cared for. Well, I obliged. I remember someone wondering aloud why we needed to bring all these mid-level African professionals (Johnson-Sirleaf, Djibril Diallo etc.) to the conference when an expert like Samuel Huntington was available (and local). I kept my mouth shut. A credit card is a hustle.

I learned a lot in those days about money, power, time, and especially about debt. On the question of time, I learned one of Einstein's dreams about the perception of time: there's that notion of time dilation as evidenced by the interval between when someone says they will give you money and the actual moment when you receive said money. A credit card is an alarm clock of sorts.

There were many lessons learned, perhaps too numerous to enumerate here. The American facility and close companionship with debt will forever remain a source of fascination to me.

My sweat paid off, money trickled in, the conference went on and I managed to pay off those initial credit card bills on time. A couple of months later, I got another letter from First USA: the credit card company duly increased my credit limit to $15,000. A credit card is a dream.

When you read about the psychology of conmen, you'll find a lot about misdirection in language and verbal framing. They fact that they call it "credit card" is quite a tell when it is actually a "debt card". The verb credit has positive associations of honour and achievement that enable the crucial leap of faith. Truth in advertising, if you will. A credit card is a confidence game.

The Story of O

Having a long and hyphenated name, I was always wary about using my now dearly departed credit card - even as First USA's issues in the realm of e-commerce were being worked out. For one, my full name didn't fit in the required space on the card's front so the first part of my last name became the initial O, and a new identity was minted, Phoenix like. For fifteen years, an entire area of forest and countless trees have been sacrificed to the cause of junk mail offers to that guy with the O initial. I tell you, Mr O. Amaah has been positively deluged by marketing offers after First USA promptly sold my details to its marketing partners. A credit card is an alter ego.

Returning to our story. In time, First USA was bought up by Bank One which was bought up by Chase Manhattan bank (later renamed Chase), which was bought up by JP Morgan to become JP Morgan Chase. The card name changed accordingly. A credit card is a chameleon.

When I lost my wallet and bag a few years ago, and tried to cancel the card, I had to go through a whole rigmarole with customer service trying to determine what the name of the card was. I always remembered it as my First USA card but there were at least four different entries in their records. Who knew? A credit card is a complication.

I am not one for debt. I had this card for almost 15 years but I found myself preferring the second card which, you'll recall, came with a lower credit line and on which my full name could be printed on its front. I only use credit cards as a convenience and am one of those termed deadbeats by the credit card industry, ergo one who pays his bills in full.

Truth be told, I stopped using it because of fickle and aesthetic reasons. I didn't want to pretend to be Mr O. Amaah any longer. I was skeptical of that entire identity conjured up out of missing pixels and thin air. A credit card is a sleight of hand.

Still, I kept the card around for sentimental reasons – you always remember your first credit card, your lost virginity in commercial debt. It was the prodigal card, or perhaps the card that the builder refused in biblical terms. Well no longer. My credit card is dead.

JP Morgan Chase received a bailout in the form of a $25 billion equity injection from the United States Treasury under the authority of the TARP legislation. Presumably as the company absorbs its Bear Stearns and Washington Mutual acquisitions, the bean counters have decided that hoarding cash is the name of the game. Risk managers the world over are doing much the same thing – that's why they call it a credit crunch, innit? They no longer relish the prospect of yours truly being seized once again by a seminal lunacy and taking advantage of the now $23,000 credit line that they had since extended to him. Oh well, their loss.

I suspect it will take a few years for Mr O. Amaah to stop receiving junk mail. While I might (briefly) mourn my First USA card, I can't wait for my alter ego's disappearance. In the grand scheme of things, I'm doing fairly well in life. I have health and loving family and friends. I applaud those faceless credit assessors for cutting me off — even if abruptly and without notice. I'll echo the words of a confounded Chinese woman:

"What's a credit card?" Adding later, "We have everything we need".

A credit card is a debt foretold.

Light Reading

• Gabriel Garcia Marquez - Chronicle of a Death Foretold
  The end was always certain but the story was worth telling. And re-reading, over and over again.

Credit in Film

One of my favourite films of the 1990s is the Dutch film Karakter (Character). It's a tale of Oedipus meets Inspector Javert with the prospect of bankruptcy looming and debtors' prison. A wonderful period thriller founded on the themes of identity and duty — the duty of repaying one's debt; that Dutch sense of rectitude.

Soundtrack for this note

Some music for the soul.

• The Streets - A Grand Don't Come For Free
  An album length meditation on the small things and the daily hustle. Standouts include It Was Supposed To Be So Easy, Not Addicted and What Is He Thinking. Indeed.
• Lizz Wright - Dreaming Wide Awake
  The sophomore album in the form of the young lioness growling. Aural candy for the jazz vocal fiend.
• Tom Scott - Today and Pete Rock & C.L. Smooth - They Reminisce Over You (T.R.O.Y)
  The sinuous horns are duly credited to Tom Scott's brand of seventies' rare groove. They were sampled to great effect by the one and only Pete Rock who added glorious snare drums. Everything that is good about hip-hop can be found in that song.

Next: What is a bank?

Some further context

File under: credit, debt, bubble, USA, economics, risk, banking, finance, observation, culture, life, Observers are worried, Shell Game, toli