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The Real Estate Mortgage Lending Environment in 2009

By: Malcolm H. Scott

There are communities around the United States that are practically abandoned due to the recent wrath of foreclosures.

Real Estate Development deals have been stopped for lack of construction financing when nearly 90% complete. Businesses that need loans for equipment and expansion are being turned down that once had no problems getting financed. Mezzanine financing on large commercial real estate deals has almost completely dried up. And, the lenders that are still lending more resemble hard money shysters, yielding the kind of fees and interest rates that most would call usurious. Not to mention, the deals are now contingent upon the lender becoming an equity partner too. Thanks for the due diligence, we love being your partner. Surprise!

http://realestate.msn.com/article.aspx?cp-documentid=16831437&GT1=35000

The last couple of years probably can’t end quick enough for most of us in the mortgage industry. The same could be said for those of us in real estate. I’m sure there are some securities brokers that wished the windows opened in some of those big office buildings. Most of them didn’t leap, although, there are a few that I would have liked to push out! I mean that in a nurturing and loving way. I’m sorry, after I’m finished standing in the bread line I’ll go see my therapist to suppress this festering resentment I have! Speed-bump?

The times have certainly changed

and with that the lending guidelines have adjusted to our new, not so, “Brave New World.” That isn’t necessarily a bad thing, seeing some folks were giving out loans to pretty much anyone that could fog a mirror. We knew the house of cards was destine to fall sooner or later. When a mortgage back security is leveraged out 38 times or so, a lot was depending on those questionable folks making payments. Of course times got tough, jobs were lost, rates adjusted, home values finally plummeted and here we all are in a heap sorting through the ashes of what we once knew. I could use a hug.

Change is good, right?

Well, as long is it is someone else suffering through the change. Unfortunately, we’re all adjusting to the new reality, and we as turn each blind corner we are really not sure what we are going to see lurking there. There are people that have been in the lending business for twenty years that are saying: “Gosh, I feel like I’ve never worked in this industry before!” Well, it’s because the whole lending landscape has changed. Quite frankly, not all for the better. The usual, ‘better get it fixed quick’ over-reactions have taken place. The pointing of fingers has happened and the shotgun blast of blame has left its mark on the usual suspects; the appraisers, the mortgage lenders and brokers, and the Banks as well as the government agencies that regulate all that stuff.

So what can we expect this year,

as we all ponder which spa membership would most likely catapult us into that svelte body we wish for in 2009? Well, seeing ‘yours truly’ got an “A” in economics, and seeing the big-shot economic geniuses are still trying to determine if we’re in a recession, I suddenly feel qualified to predict with the same ‘extreme uncertainty’ as the best of them! My answer: Probably a bit more of the same. (Where’s Chancey Gardener when you need him?)

Compared to what we had before, it seems our choices on loans are, well, a bit limited to say the least. But, lets examine just what’s out there. Wait, it’s easier to say what isn’t out there. For the most part option arms are gone. At least the stated income version of those products. You pretty much used to be able to put 20% down based on good credit and reserves and get an 80% loan. In some instances up to a couple of million dollars. There are a few stated income lenders left. Although, as I write this, they may have changed their lending guidelines. Definitely a thing of the past. Although, I’m sure they’ll return after the taste has been flushed from their proverbial mouths and spreadsheets.

You can still get big loans. Loans over one million, two million or so, but…you need to qualify with recent tax returns, show great reserves and, oh yeah, you actually have to have a job or a regular source of income that supports the debt payments. I know, it’s a lot to ask, but seeing the financial markets have gone down the toilet, something had to change. Perhaps the worst news of all this change is there isn’t a market out there for jumbo products. In other words, no one will buy jumbo loans yet so the rates are still off compared to what is going on ‘in’ the market and compared to the conforming products. Try pricing out a 30 year fixed rate product on a million dollar loan. Not a 30 year amortization on an adjustable, a straight 30 year fixed. Before you do this clear the room of the children so you don’t spew naughty language while on the phone.

Now the good news is, there are still competitive jumbo loans out there, at the time of this writing, some jumbo stuff was in the mid-5’s. But that would be on five year fixed rate products. Now the real good pricing is on the conforming products. There has been a lot of discussion that the Feds were going to reduce the interest rates to 4.5% on 30 year loans. That’s pretty exciting to me. So far it’s only discussion. A bunch of yappin’. But for fun let’s do the math. On a $400,000 loan your payment would be around $2,027 a month. Not too shabby. The only bummer is, you have to have a job. I’m sorry, I don’t want to sound, well, so presumptuous.

So the trick to obtaining financing right now is:

• Save money (you need reserves & down payment money)
• You must have a good credit score, over 730 is great!
• Have a job, It’s a necessary evil. Bummer.
• Keep your debt down (you want a house or an $800 a month car payment?)

I personally feel we’re on the brink of another huge refinance boom in the coming months. I feel the rates are going to come down more, and, it will be just simply be hard to ignore. (That rhymes) Now some people won’t be able to do anything because their loan to value will be all out of whack. For those of you that qualify, look into loan modifications. Whatever you do, take advantage of this low interest rate environment. Rates will be down for a while- don’t miss the boat.

Another thing I see happening right now; the lenders are squeezing out the brokerage community. Setting themselves up to eventually monopolize the mortgage lending environment completely. After all, there are only a few big banks left that run it all. Is that a good thing? You be the judge.

As far as buying is concerned…

I’m seeing deals that are pretty awesome already. All around the country there are amazing real estate deals. Some areas will continue to get further depressed, but, for the most part the Los Angeles area already has deals that are hard to ignore.A lot of areas around Los Angeles have already seen a reduction in value of 30%. Some more than that. The higher end coastal properties have come down as well and my guess is they have further to go. Seeing you can’t really plan to buy at the bottom. (The bottom is always a retrospective vision.) So when deals get hard to ignore, buy! It truly depends what your buying needs are. In this coming year, while there might be a bit more of the same, I’m hoping that there will be a tad more optimism then we witnessed last year. Last year was a shock to even the wealthiest. For most of the year people were wandering around resembling a scene from “Night of the Living Dead.” Even those ghouls had more spunk then most of us. If there was one good thing that came of it, people seem more involved , more engaged and more of a community. So as we embark on another year, if you need to, steal some light from some perky individual that hasn’t been affected. (Probably someone that doesn’t own anything). And remember; It’s just a cycle. Just keep repeating, it’s just a cycle. Perhaps what we all should do is ponder on what we personally could have done differently. I’ll let you savor that thought privately (seeing I’m just out of slapping range) while I graciously bid you a good day. Cheers.

http://articles.moneycentral.msn.com/Banking/HomeFinancing/whats-ahead-for-mortgages-in-2009.aspx

Contact us if you are planning to buy in the Los Angeles area and we’ll provide you with the current trends in a specific area we handle.

This entry was posted on Thursday, January 15th, 2009 at 2:22 pm and is filed under Money Matters. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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