Are Banks Still Lending?

[kingstu]

Originally Posted by Tom Kazanski

IMO, you should not be buying a house otherwise. And with my wife being a real estate agent, this directly effects me.

I think as long as you had a heartbeat and a social security number you could get a home loan from 2002 - 2006...

[Octavian]

Originally Posted by kingstu

I agree...I just don't see how borrowing another $700BN will have any impact on that.

It's aimed at allowing banks to remove toxic loans from their balance sheets. The government will then sit on the loans and help to work them out. It's effectively a second life for many banks. Surely, the weaker banks that made bad decisions should be punished but in a fractional banking system, only so many banks can collapse before we hit a point of no return (IMHO).

Also Stu - isn't it the interbank lending that's the real issue? Some companies simply can't roll their paper into the market place because there are no buyers.

[kingstu]

Originally Posted by Octavian

Also Stu - isn't it the interbank lending that's the real issue? Some companies simply can't roll their paper into the market place because there are no buyers.

Yes but what I can’t figure out is…if banks really aren’t lending to each other…how can they fund loans to anyone else? We should see this in the data as a sharp drop in lending to corporations and consumers but we don’t.

If consumers are really taking out large chunks of cash and banks aren’t lending to one another…how are they funding loans? I imagine they are going to the discount window…which means they really wouldn’t need overnight loans from other banks.

[MODE ROGUE]

Originally Posted by LavrentiBeria

Can you be specific? I heard it is 15% down + credit score > 700. That's not absurd, but reasonable.

If qualifying for loans was based only on a credit score and a down payment requirement, you’d be 100% correct. Here are a few examples of what I refer to as absurdity:

A – Appraisals. Back in the “old days” (i.e. – a year ago) an underwriter would have an appraisal go through a formal appraisal ‘review’ if it looked suspicious. Today, virtually every appraisal is submitted for appraisal review and lenders are frequently coming back with LOWER values than those submitted by certified appraisers. This is commonplace and, clearly, a showstopper.

B – Mortgage insurance. The cost of MI has skyrocketed. MI companies have also placed minimum credit score requirements for buyers, above & beyond what the lenders mandate. In other words, you may have a 680 score and qualify for a loan with a 675 credit requirement and then, ultimately, fail to get the mortgage because the MI score (minimum) requirement came back at 700.

C – Changing guidelines. This is the worst culprit. You may be working with a buyer and have them pre-qualified and ready to go with a specific loan program through a particular bank. Let’s assume one of the guidelines was that the buyer needed 3 months of reserves to qualify. Your buyer may fit that criteria and literally, 1 week before the closing date, the bank changes the reserve requirement from 3 to 5 months. Bam !!!!! Your deal just fell apart. That’s just one example and it happens with virtually every file.

It’s fucking Thunderdome !!

[gasguzzler]

I was listening to talk radio the other day and a caller said he was a lender (can't remember what specifically he lent for), but he said the banks he works with all had cash they wanted to lend, just no one to lend it to.

[MODE ROGUE]

Originally Posted by kingstu

I’m sorry to hear this. With home prices doubling during the past few years…there’s only one way they can go. If you were a bank and home prices were still falling…how anxious would you be to lend on current appraisals?

Not anxious at all however, the problem is that the banks are partially responsible for continuing to drive values down. Appraisals are undergoing appraisal “reviews” with each file that’s submitted. The banks are countering with lower values than those prepared by certified appraisers using legitimate comparables.

Demand is much, MUCH higher than people perceive. One of my developers is averaging about 120 new prospects (walk-in’s) every month. That number has been consistent throughout the year. The problem? We write about 6 contracts a month and fail to close on 5 of them. Most of the buyers we lose can legitimately afford the home. They just don’t have the $50k in the savings the ass-backward banks NOW expect them to have.

[MODE ROGUE]

Originally Posted by kingstu

IMHO, this seems pretty reasonable to me. Your description prefectly describes me and I can get a loan on any propery my income can support.

If you have:

FICO>700
Down Payment>10%
Pre Tax Income>3x monthly payment
Job> 3 years

Almost any bank in the country will give you a loan and be happy to do it.

Sorry bro, you're wrong.

[MODE ROGUE]

Originally Posted by Tom Kazanski

That sucks man, I hate to hear that.

Let me ask you this though, do you think maybe we are getting back to where it should be as opposed to the outrageously loose criteria that congress pushed on banks over the past 6 or so years?

Absolutely !!!! The problem is that the pendulum has swung from one radical extreme to another. As the banks move closer to center with their qualifying criteria, we’ll be exactly where we were 7 to 10 years ago. Lending to people with sensible credit and appropriate income for homes with true & accurate values.

[kingstu]

Originally Posted by MODE ROGUE

A – Appraisals. Back in the “old days” (i.e. – a year ago) an underwriter would have an appraisal go through a formal appraisal ‘review’ if it looked suspicious. Today, virtually every appraisal is submitted for appraisal review and lenders are frequently coming back with LOWER values than those submitted by certified appraisers. This is commonplace and, clearly, a showstopper.

B – Mortgage insurance. The cost of MI has skyrocketed. MI companies have also placed minimum credit score requirements for buyers, above & beyond what the lenders mandate. In other words, you may have a 680 score and qualify for a loan with a 675 credit requirement and then, ultimately, fail to get the mortgage because the MI score (minimum) requirement came back at 700.

C – Changing guidelines. This is the worst culprit. You may be working with a buyer and have them pre-qualified and ready to go with a specific loan program through a particular bank. Let’s assume one of the guidelines was that the buyer needed 3 months of reserves to qualify. Your buyer may fit that criteria and literally, 1 week before the closing date, the bank changes the reserve requirement from 3 to 5 months. Bam !!!!! Your deal just fell apart. That’s just one example and it happens with virtually every file.

These all seem pretty reasonable in uncertain times with housing prices still falling.

[kingstu]

Originally Posted by MODE ROGUE

Sorry bro, you're wrong.

I can only speak from my experience. I have not tried funding yet. Shouldn't there be a sharp drop in real estate lending then?