Journey Into Retirement

I am back at least for now. My last post on the journeyintoretirement blog was the end of March. In that interim period I have gone from planning my retirement to actually entering that golden period. We wanted to retire in Pensacola Florida and found the perfect house. We realized that if we don’t buy now, it would not be available, but I still had one year until I planned to retire. So, I approached my employer to allow me to work remotely and was told that it was not corporate policy.

So, I retired! It was a decision borne out of pure emotion. I am usually more rational and analytical, but it just felt right and I did it. Two months in and it appears to be one of the better decisions in my life.

However, the transition was not painless. Let me tell you about . . .

Getting a mortgage for your retirement dream house: A cautionary tale about dealing with the banks

I am going to tell you about my experience, a fiasco with the Bank of America. I am not sure if other banks are better or worse than B of A, but you can make the call. I toyed with not revealing what bank was involved, but they need to fess up – so, here’s to you Bank of America.

Since we were selling our house in the St. Louis area to move to Florida, I needed a bridge loan that would tide me over in case we had to purchase the house in Florida before we sold the house in Missouri. So, I talked with my local loan officer and he came up with the perfect solution: They would give me a home equity loan to the maximum they could and the rest would be funded through a mortgage. The home equity loan would be paid off when the Missouri house sold. He had it solved. Until I was informed by the bank a couple of weeks later that since they had been burned once in the past by people holding two mortgages, they no longer would allow this (ONCE in the past? I thought that they were a large bank).

However, it was still OK because I would use retirement savings to cover what was not available after the mortgage and replace this money when the house in Missouri sold. Unfortunately, the bank was not so accommodating. To wit:

The bank will require a LOT of documentation from you – expect to provide the exact same documents not once, but several times.

From February until May, I was required to provide not only updated documents, but the exact same documents a minimum of three times. Tell them that you already had provided something and they will tell you if you don’t provide it again, they can’t process the mortgage request.

Going into retirement magically morphs you from a valued customer to a BUM

When my company said no to the remote requests, I advised the bank that I would be going into retirement. That is when the hell really began. You see, from the perspective of the bank, people going into retirement have no income and they have no savings resources. I learned this bitter truth from a realtor. The perspective of the bank is that since you can fake or counterfeit any document on the internet (or through other means), any documentation you may provide is considered bogus. You have no Social Security or Pension – those documents can be faked. You have no 401k or IRA savings. Those documents can also be faked. So, although the bank asks for a lot of documentation, they believe none of what you provide.

I found it curious that they continuously questioned my ability to service the mortgage until I realized that they were not considering sources of retirement income. Savings also were highly suspect.

But, my loan officer once again had a solution. I was to shift a substantial amount from my 401K or IRA accounts into my checking account so that the bank underwriters could see that the money was there and could be used to pay the mortgage. I needed to do this for a minimum of two months. He indicated that this would “guarantee” approval of the mortgage. However, that money becomes taxable once it is shifted from your 401k to checking. In other words, the cost shifts to me with no real guarantees. So, I did this, but approval of the loan was still not forthcoming. I mentioned to my loan officer that if he didn’t believe the loan would be approved, I was quite willing to pull the funds from my retirement saving and fund the purchase of the Florida house with cash. He was adamant that I didn’t need to do that. “The mortgage will be approved – have faith in us.”

Pushed to the 11th Hour

We needed to close on the house in Florida by May 30. There was no wiggle room. I played this annoying game with the bank from late February up until about the middle of May. Finally, on May 23, one week before the closing mandated by the contract, the Bank of America loan processor told the lawyer who was doing the closing to schedule the closing for May 29 – Most would assume that this meant that the mortgage had been approved, but read on.

So, on Wednesday, May 28, the day before the scheduled closing, I got into my car and began the 12 hour drive to Pensacola. This is when it got really interesting. I was in the soy fields of Tennessee, about four hours into the trip when I got a call from my realtor in Pensacola. You see the bank had called the closing agent in Florida and said that the closing the next day was off. Over the course of the next three rest stops, I tried to reach the loan processor to find out why to no avail. Finally, at a rest stop in Mississippi I was able to reach my local loan officer in Missouri. He called the loan processor (apparently they accept calls from each other, but not customers). The reason for the holdup was that they needed another document (one that I had already sent to them at least twice in the past) – they were pretty adamant that I send it once again or they could not proceed with the application. So, I am on the road, at a rest stop in Mississippi, no document and certainly no fax machine available to me and there would be no closing unless I provided a document that they already had. The loan officer said that he would see what he could do and would call me back by the end of the day. Two months later, I still have not heard from him.

I arrived in Pensacola that evening at around 8:30 pm, tired, angry and stressed. It was enough to push me over the edge – I decided that I would procede the next morning to gather the cash that I needed from my retirement accounts. I did and the closing went off without a hitch one day later. In actuality, there will be a nasty tax implication, but we will be better off in the long run. So, I left the lawyer’s office after closing feeling really good. We owned our dream house free and clear. However, there was also another positive implication I didn’t anticipate. My closing costs went from around $11,000 when the bank was involved to a mere $375. Think the bank was making a profit? And yet, they were still sandbagging.

Understand the Incentives

So, what was really going on here? It turns out that the congressional legislation (Dodd/Frank) that was trying to stop the bank practices that caused the crash in 2008 was causing some internal strife for the banks. I found out that if the underwriters were to approve a loan and the loan defaulted within six months, the underwriter would be fired immediately. So, the attitude of the underwriters was “convince me that I should give you a loan” rather than “let’s see how we can make this work.” They were looking at nothing but negatives because they wanted to say no! You don’t lose your job if you say no. The local loan officer on the other hand was given a commission on any loan that he were able to get through. So, my suggestion that I would go to cash on the purchase was not in his interest. He pushed to the very end to keep me in the process if there was any possibility he would be paid. Pretty slimy practices on both parts.

How do you get the house you want when you retire

This again was advice I got from a realtor. Here you have two options. Option #1: Buy your retirement house before you retire. You will still have income from your current job and it will look like a vacation house purchase to the bank. Option #2: Lie!! In general, honesty may be the best policy, but when the bank is involved, not so much. Don’t tell them you are retiring and make it look like a vacation home purchase. You may have to carry two mortgages for awhile, but it will be much easier on your mental health.

Post Script

After closing on the house in Florida I heard NOTHING from the bank for the better part of six weeks. At that point, I got a letter in the mail telling me that I didn’t have the income to warrant approval of the mortgage request. I read this letter as I was sipping wine on the deck of the house we had just purchased – I was rather amused. About one week later, I got an e-mail from the loan processor saying that I had not provided additional information that they needed and that this delay could slow down the mortgage approval. I started singing the words to the song, “Bring in the Clowns.” One additional little tidbit: About that time, Bank of America announced a substantial loss in their first quarter earnings – brought about by a reduction in home mortgages that they were funding – Hello, is anyone listening at B of A? Didn’t think so!!