As a recent home buyer and Hamptons real estate professional, I debate whether the bailout banks (TARP participants) are actually in the business of lending money. If not, what business are they in?
I would guess that lending money to people comes with risk. Who wants risk? I am adverse to it. It appears that the big banks are, too. There is an old saying, 'banks are willing to lend money to those who need it least'. Well, there is one more layer to that. What if the banking system allowed banks to borrow from the Federal Reserve and lend it to the federal government via purchasing government bonds? Most people do no know that the Federal Reserve and the federal government are not one in the same. The difference between the rate at which the Federal Reserve lends money to the banks and the rate at which banks lend to the federal government is complete profit, with no risk! (see 'the carry trade') Who's better to lend money to than the United States government? Peggy Bundy, had a great business selling goods from home. She was buying things from her own company with Al's credit card! She was so proud of herself and the money that she was making. It is not exactly the same, but you get the point.
Have you ever looked at your bank statement? The nickel and dime fees add up! Free checking sounds great! However, the banking experience is not free or gimmick free. Often these fees are just on the cusp of intolerability vs. the frustration spent on the phone with outsourced customer service. Many people will overlook the fees. However, many more will just concede to them.
I was told by a very active Hamptons builder, do not try to borrow from the big banks. It takes forever and they are trying not to lend. His explanation was that some may be shell companies that their biggest assets are are their carry forward tax losses. This means that the value of these companies' tax losses are worth more than their market value. For example, hypothetically of course, Apple could benefit from purchasing Citigroup because the carry forward tax losses would create greater tax savings than the purchase cost of the bank. Think about it.
Unfortunately, we chose to borrow money from one of the big banks. It was quite an experience. Due to the, for the lack of a better word, fraud committed by the banking personnel has created an over-correction of policies to the point where verification has become over kill. Paperwork that has been sent twice needed to be sent again. Proof of residency had to include that an association mailbox correlated to a physical address an had to be provided by the town clerk. This evidence was so tenured that it survived two owners and was only available on microfiche, in 2012! The bank's real estate appraisals have been far more conservative than fair comparables.
So, without getting long winded, one can get a feeling that the bailout banks are not focused on their defining role, banking / lending money. Well, in Hamptons real estate we are most interested in banks lending money.
If I were to do it over again, I would seek financing from non bailout (local) banks or not deal with these banks directly, i.e. use a mortgage broker. It is my opinion that the bailout banks are not necessarily looking to lend money, rather looking for reasons that allow them not to.