Letter to Bernanke: Losing Hope in the Banking System
The following letter was sent earlier this summer to Federal Reserve Board Chairman Ben Bernanke:
Dear Mr. Chairman:
On July 16, a group of home builders from the National Association of Home Builders met with you to discuss issues of concern affecting our industry. Due to the limited time we had for our meeting, I was not able to share some comments with you regarding banking issues that are affecting my business and my livelihood.
I immigrated to the United States when I was eight years old. The one thing I love about this great country is that this really is the land of opportunity. Opportunity does not care whether you are black or white, male or female, young or old, foreign-born or U.S.-born. Opportunity is available to all willing to work hard, take risks and be persistent. I have modeled my business around this central theme of opportunity. I go where the opportunity is. Sometimes it is in building a tract of homes, sometimes it is in building custom homes and sometimes it is in buying foreclosed properties from banks, remodeling them and then renting or reselling these refurbished homes.
I have always had a tremendous amount of hope knowing that my destiny is in my own hands and that through careful planning and taking advantage of the opportunities that were available to me I would succeed and hopefully contribute to society. Regrettably, I must inform you that I am losing hope. I fear that the economic situation is deteriorating to a level that, no matter what I do, doors that were once wide open are now being slammed in my face.
I have three tract home developments that are at a standstill. The largest is a 163-unit townhome development in a gated community. After 18 months of trying, I was able to get a two-year land loan extension from the bank that took over the original bank that failed. It took a tremendous effort to get this loan extension, including cross collateralizing the project with my home and three other properties I own. Right now this large, shovel-ready development is sitting on the shelf because no one is making construction loans. I could almost write a book regarding my efforts to secure financing. There is no money available for development. The banks are hoarding their money and refusing to lend to builders like me. Imagine how many people I would employ and how much my project would contribute to the local economy if I could somehow secure the necessary financing.
Since I cannot obtain financing for my tract home developments, I went to another area of opportunity — building custom homes. One of these projects is an old home in a great neighborhood that I remodeled into a high-end, custom residence. This home should have sold for about $1.7 million. Unfortunately, the market went against me and I had to lease the home. I am losing about $4,200 per month on this home but I refuse to walk away and let it go into foreclosure. The bank lent me the money in good faith and I will repay them; after all, a deal is a deal. I have tried to refinance the home to get a lower interest rate so I can reduce my negative cash flow, but the super jumbo market is difficult at best. The appraisals come in so far below actual market value and the loan-to-values are so low that a refinance is out of the question. So, as you can see, this second area of opportunity is no longer viable because banks are making it virtually impossible to secure financing.
Since the opportunities in building tract homes and custom homes have dried up, I turned once again to buying foreclosed properties from banks. These are inexpensive homes and apartments in San Bernardino County, Calif. I am told that we have the second highest unemployment rate in this country behind Detroit. I currently have six properties totaling 13 units that we are remodeling and then renting to low-income families. It has taken everything I have at great personal risk to buy these properties for cash and then pay for the remodeling. Now I find myself in the very uncomfortable position of not being able to find a lender that will refinance any of these properties. I own other rental property and have mortgages on these apartments. My bank, which has received TARP funds, will not lend to anyone having more than four mortgages, as they sell their loans to Freddie Mac. Fannie Mae has somewhat higher limits on how many mortgages a borrower may have, but I also exceed their limits.
I am very troubled. I am performing a valued community service by buying these boarded-up, vandalized and dilapidated homes. I am providing work for not only my own employees but to countless subcontractors. I am buying building materials. I am paying sales taxes on these materials. I am providing much needed housing for low-income families. I am now at a standstill and will not be buying any more properties, as I cannot refinance any of the homes that have been rebuilt and rented. Soon I will be dismissing all my employees. These are good people with families that depend on me. This is a heavy burden that I bear and I dread the day that I tell them that I no longer have any work for them. This third area of opportunity is no longer viable for me because of the dreadful situation in our banking system. Banks were given TARP funds so they could lend money to stimulate the economy. Where is this money? We are certainly not seeing any of it out here.
Chairman Bernanke, I started this letter by telling you that I love this great country because of the opportunities available to all of us. I fear that this opportunity is drying up even for people like me who actually look for opportunity, are creditworthy and risk everything to provide a better future for our families. This is not the America that I grew up in. People are losing hope and sadly I must tell you I am one of those people. I have always been an optimist, and right now it is extremely difficult to have any hope. I believe that when hope is lost, civilizations decline.
A friend of mine once told me this quote: “Great leaders rally people to a better future.” Chairman Bernanke, after meeting you I believe that you are that great leader who can rally people to a better future. You can do that by using your power and influence to convince banks to once again start lending to creditworthy customers. You can rally our industry to a better future by using some of the returned TARP funds for acquisition, development and construction loans to help builders start building again and putting families into homes of their own. You can rally us to a better future by relaxing the stifling lending standards at Fannie and Freddie and relaxing the onerous appraisal standards.
Let’s get America back to work again. Please help us to restore hope and opportunity to this great land once again.
Rafael “Ray” Fernandez
La Habra Heights, Calif.