When you think about it, the whole set-up behind The Wizard of Oz movie has a lot to do with basic real estate—particularly when it comes to how home loans are created. It can illustrate a little-understood basic fact about the mechanics of how home loans originate. Looked at this way, L. Frank Baum’s story is more than just a cautionary tale about what happens when a perfectly good farmhouse gets uprooted and reestablished in a different state (or planet, maybe).

Since a refinance is a type of home loan, the connection with home loans couldn’t be clearer. In Oz, not only is the new neighborhood full of new risk-carrying hazards like uncaged lions, flying monkeys, and a variety of witches, but the land is being run by an untrustworthy Wizard who seems to exercise unchecked authority. If that weren’t enough to give any investor pause, there’s the worrisome matter of the poppy fields just outside of town…

If Dorothy’s parents were to try to refinance the farmhouse in its new site, they would certainly have serious problems finding a lender willing to participate at reasonable rates. And it’s here that Wizard illustrates a little-understood basic about how home loans and refinances come to be created.  

Most people think of a home loan strictly as an agreement between a lender and borrower. That’s only true on the surface. In fact, another entity is involved: the investor. Investors are outfits like Fannie Mae, the VA, FHA, etc.

Lenders (the banks and mortgage companies) are in business to offer loans which they can sell to investors. The investors issue guidelines to the lenders—guidelines that specify the degree of risk they are willing to take. In fact, cautious lenders strive to further minimize risk levels specified in the guidelines in order to be certain that a given loan will interest an investor.

So when Dorothy sings “Over the Rainbow” to her little dog, the sentiment could echo anyone who’s having to jump through hoops for their home’s refi:

If happy little birds refi

Why then, oh why can’t I?

Understanding why some home loans are easy while others seem stubbornly hard to arrange is one way to remove emotion from the process. That not only reduces stress—ultimately it tends to make success more likely. I’m here to move all your real estate matters into the “done” column: call me!