Circular logic on a round house

By Mae M. Ngai and John G. New
Saturday, November 6, 2010; A13

We found our dream house.

We found it just 15 miles outside the District, in southern Prince George's County. A stunning three-bedroom, two-bath contemporary on six acres of wooded land with a stream running through it, a huge deck and a swimming pool. A wall of windows brings the surrounding woods into the house. Strongly built and energy-efficient, it sailed through inspection. It was perfect for us, a commuting couple with jobs in New York and Washington. And the price? Less than a Manhattan studio.

But our efforts to buy the house revealed a dimension of the housing market many people probably don't see. Much of the recent news about the housing market has concerned massive foreclosures. But banks are scrutinizing much more than would-be buyers' financial shape. They're worried about other shapes, too.

We were pre-qualified for a loan; with two professional incomes, good credit and enough cash for a 20 percent down payment, that would not be our problem. Yet two mortgage companies turned us down. The first did so after its investors - big banks with household names - rejected our application. The second mortgage company's internal underwriters also rejected us. Their reasons were the same: The home, a customized modular house of internationally acclaimed design, built in 1989, is . . . round.

Being "unusual" or "unique," it was deemed "not marketable." Despite its evident worth and multiple independent appraisals, the lenders said they could not assign a value to the house because there were no comparable properties. And, with no "value," there was insufficient collateral for a loan.

In fact, round is what we loved about this house. There are hundreds of colonials, ramblers and McMansions on the market, many of them short sales and foreclosures. We wanted something different. The mortgage industry apparently only wants us to buy what everyone else has (or had).

The two mortgage lenders didn't consider us a risk; rather, the risk was the design of the house itself. They believe that if we defaulted on our payments, they would not be able to resell the house. There is a certain perversity about making a house unbuyable, even to two eager would-be purchasers, for fear of it being unsellable in the future.

This is how far the pendulum has swung. Two years ago, banks were approving balloon mortgages for people who made little or no down payment and whose ability to pay was questionable. Now they have gone beyond being more cautious about borrowers' income and assets to being skittish about even the shape of a house.

We're disappointed. But we also are struck by the irony, during a recession and in an area with a depressed housing market and a shrinking property-tax base, of financially well-qualified and willing buyers being turned away simply because a property is "unique." Lenders are making overly conservative decisions based on fuzzy logic and blinkered, formulaic reasoning. In so doing, they discourage the market from recovery. And the house sits unsold, our dreams denied.

Mae M. Ngai is a professor of history in New York. John G. New is an attorney in Washington.

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