Are Banks Still Lending?

[PEB]

Originally Posted by viruswitshoes

you might see like 5 threads that i tried to start pop up shortly (damn inefficient board) but here was the meat of the thread. i think it applies here: (warning this is largely baseless speculation)

one of my theories is that this is all just a way for those with money to buy stocks relatively cheap and make a killing in a few years. they caused panic so the average american with a fund or 401k would leave the market and they could buy it up for cents on the dollar. same thing is happening with properties i'm sure. everything is dirt cheap and the average person is selling what they can because of the panic or because they cannot afford it.

so in what looks to be a transition to socialism, maybe this is just yet another example of the wealthy figuring out a way to manipulate the market so yet another transfer of wealth takes place.

the paranoid part of me thinks that the wealthy did not like when the class lines were being blurred after the internet/tech boom in the late 90's, because the value of their wealth (social value) was decreasing. so they found a way to sucker people into an artificial housing market and cash in on the devaluation of property and stocks.

As people try to analyze this to no end this is likely the most simplest of answers. In the past it was called a market correction. This is done to put downward pressure on the market. Being as old as I am I have seen three large market corrections. Each time they come with drops in consumer prices and job loses. This one will likely come with sold recovery after a massive sell off bankers will make out in the end. The Government will shake out the smaller banks and the larger banks will be absorbed byt the huge banks.

[Nietzsche13]

Originally Posted by define "is"

Yes, it is now. However, should they have stayed out of it in the first place and let the markets do their jobs, we'd be better off in the long run. Then again, this is a "need it fast, need it now" society that can't stomach even a year of economic downturn without someone "doing something". Even if that "something" puts you in worse shape than you were before, all that matters was that somebody was doing something and it made us all feeeeeeel better.

Unfortunately, the same techniques that got us into this mess are being used to create a new problem right now.

Two or three years from now, there will be another catastrophe and it will naturally be too late to do anything about it.

[Oblivian]

Originally Posted by Nietzsche13

What the banks are doing is raising the down payment requirement. The days of no money down are gone forever. You will need 20% for now on plus great credit. In commercial lending, the borrower will be responsible for guaranteeing new loans with additional collateral on top of the property itself.

This isn't entirely true. Freddie Mac is still giving mortgages with only 5% down. National City and Wells Fargo are still doing mortgages with only 3% down. The Genesis Program (FHA with 3% down paid by seller) just ended on September 30.
From working in the industry, I can tell you the biggest problem isn't the lack of down payment. The lack of down payment required is definitely a problem, but it's the overextending of credit compared to income. Let's say Joe Blow was approved for a zero down 200k loan in which he was foreclosed on. If the banks have the same guidelines with the only difference requiring a 20% down payment, Joe Blow will go out and buy a 250k house with 50k down and still be foreclosed on. If your mortgage payment is more than 25%-33% of NET monthly income, you are running a major risk IMO.
Also, the "tightening up" when it comes to credit scores isn't here yet. We just received an order for someone who declared bankruptcy in 2005 who is getting a purchase money mortgage. We've also recently received orders where the buyers have judgments that will not be paid off at closing and attach to the property once the deed is recorded. It's flat out ridiculous.

[PEB]

The question I have to ask most economist expected some kind of large bank failure over a year ago. Does it seem a little odd that this hits so close to the election. I also find it a little odd about the size of bank rescue 700 billion. Anyone taking office now is likely going to face some of the most difficult Government problems. I have a feeling the Democrats in two years are going to held responsible for not turning the Country around as fast as people would like sound similar to some other time? Think early 1990s when both houses where cleaned out and replaced by Republicans. Not saying that these are tied together but the time bomb was set on the way out the door.

[KidBaize]

Originally Posted by LavrentiBeria

What the hell is the Shadow Banking system? Never heard of it before

Also referred to as "Dark Pools" [of capital], they are unregulated and over-the-counter bilateral contracts that constitute a large part of current global trade. Because they are so opaque and without oversight, they pose a huge risk to the global financial system. It has been suggested that our current crisis is really the unwinding of these dark pools. And since no one knows how large the system has become, that uncertainty is adding to the daily volatility in the markets and to Bernanke and Paulson's panicked urgency for govt intervention.

One of the best articles I've read on the subject, written in July before the crisis began (very good):

Are "Dark Pools" Destined to be the Capital Markets' Next Black Hole?

Dark Pools are electronic "crossing networks" that offer institutional investors many of the same benefits associated with making trades on the stock exchanges’ public limit order books - without tipping their hands to others, meaning publicly quoted prices aren’t affected. This is the capital markets’ version of a godsend - especially for traders who desire to move large blocks of shares without the public investors ever knowing.

Some examples of so-called crossing networks include Liquidnet Inc., Pipeline, the Posit unit of Investment Technology Group (ITG), or the SIGMA X unit of Goldman Sachs Group Inc. (GS).

In an era in which "secret" transactions contributed to what’s shaping up to be the largest credit crisis in history, you’d think that any mechanism that allows insiders to trade in complete secrecy and with total anonymity would be scrutinized more closely than a Roger Clemens vitamin shot. But that’s not the case with Dark Pools.

It goes on to list some of these private exchanges.

[MODE ROGUE]

Originally Posted by Oblivian

This isn't entirely true. Freddie Mac is still giving mortgages with only 5% down. National City and Wells Fargo are still doing mortgages with only 3% down. The Genesis Program (FHA with 3% down paid by seller) just ended on September 30.
From working in the industry, I can tell you the biggest problem isn't the lack of down payment. The lack of down payment required is definitely a problem, but it's the overextending of credit compared to income. Let's say Joe Blow was approved for a zero down 200k loan in which he was foreclosed on. If the banks have the same guidelines with the only difference requiring a 20% down payment, Joe Blow will go out and buy a 250k house with 50k down and still be foreclosed on. If your mortgage payment is more than 25%-33% of NET monthly income, you are running a major risk IMO.
Also, the "tightening up" when it comes to credit scores isn't here yet. We just received an order for someone who declared bankruptcy in 2005 who is getting a purchase money mortgage. We've also recently received orders where the buyers have judgments that will not be paid off at closing and attach to the property once the deed is recorded. It's flat out ridiculous.

Most of his post (Nietzsche) was indeed accurate. To be very honest, I’m astonished that you have prospects with 3 year old bankruptcies and unpaid judgments receiving financing. You specifically mentioned Nat City & Wells as lenders you work with. I’ve done TONS of business, with both, for many years and have outstanding relationships with my reps there. There is no way on god’s green earth that they would approve the types of loans you have described here. For that matter, I don’t know a single bank in America that would approve those loans.

Who are you getting the approvals from? More than anything, I could use that information to process some files. I genuinely hope you’re not BS’ing…

[LavrentiBeria]

MODE ROGUE, are you saying that even if, say, Well Fargo pre-approves me, they can still prevent me from buying by saying that the house I want is overpriced, even if it really isnt--for example, the asking price has dropped by $150,000 over the last 6 months?

[MODE ROGUE]

Originally Posted by LavrentiBeria

MODE ROGUE, are you saying that even if, say, Well Fargo pre-approves me, they can still prevent me from buying by saying that the house I want is overpriced, even if it really isnt--for example, the asking price has dropped by $150,000 over the last 6 months?

Of course my friend. Happens every day. The banks will only lend, NOW, based on what THEY believe the value of the home is and not what your certified appraiser is valuing it at. In essence, they’re “forecasting” prices to drop even further despite the fact there are existing comparables that support the values and you have willing/qualified buyers prepared to make the deal happen. They (banks) are obviously protecting their best interests while making it wildly difficult for a standard real estate transaction & closing to take place.

[LavrentiBeria]

Originally Posted by MODE ROGUE

Of course my friend. Happens every day. The banks will only lend, NOW, based on what THEY believe the value of the home is and not what your certified appraiser is valuing it at. In essence, they’re “forecasting” prices to drop even further despite the fact there are existing comparables that support the values and you have willing/qualified buyers prepared to make the deal happen. They (banks) are obviously protecting their best interests while making it wildly difficult for a standard real estate transaction & closing to take place.

I wonder why the loan officer at Wells Fargo warn my friend about this practice. Why waste both parties time.

[MODE ROGUE]

Originally Posted by LavrentiBeria

I wonder why the loan officer at Wells Fargo warn my friend about this practice. Why waste both parties time.

Two things:

1 – While appraisal reviews are now happening virtually 100% of the time, it does not necessarily mean that the bank will always undervalue the property. It’s been happening frequently but it’s not standard practice. There’s a ton of factors involved and each transaction is different.

2 – In the end, while this type of thing makes it VERY difficult to close a deal, the person who ultimately benefits (assuming the transaction takes place) is the BUYER. Think about it, they’d be purchasing at a very low price. Understanding that the market will eventually rebound, he’s practically assured of having equity in his property going forward.