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Thursday, Mar 28, 2024

Lending: The Game Changer

Two years after the collapse of the residential real estate market, mortgage rates are lower than they have ever been since they were first tracked nationally, yet the number of applications filed in recent weeks has also dropped to levels not seen in years. Today’s economic conditions seem to have put a halt on the mortgage industry and there’s no question the lending world has changed significantly since those days when creative mortgages that went by names like “no-doc” (meaning no documentation of income required), “low-doc” or “stated-income” mortgages were all the rage during the housing boom. “What we’ve seen to a large extent is the disappearance of subprime lending, of some of the low-doc and no-doc loans that were available to individuals as they thought about financing real estate,” said Dave Malone, president and CEO of Community Bank. “What we’ve seen is the removal of a financing technique that was once available for folks.” Underwriting standards have changed to a large extent and for the most part banks have stopped trusting borrowers to “forecast” future income during the underwriting process. Large banking institutions such as JP Morgan Chase have stopped using third party brokers in order to minimize risk. Chase spokesperson Eileen Leveckis said the bank stopped underwriting prime mortgages that are originated through third-party brokers, and is relying instead on its branch network officers to make home loans to creditworthy customers. The move is aimed at better serving customers by having mortgage officers work directly with them, explain the bank’s products and help them make choices, she said. Despite the low number of mortgage applications taking place in today’s economy, there are a few that are taking advantage of the low interest rates and low home prices, seizing opportunities that are too good to pass up. The number of jumbo mortgages – those larger than $729,000 — have picked up in recent months both at large banks like Citibank, and locally. First Private Bank & Trust in Encino reported growing its jumbo mortgages portfolio from zero to $160 million within a year and a half. Citibank said jumbo mortgages were up 30 percent in the past 60 days. Business lending Over the last two years getting a business loan has also gotten increasingly harder. Lending to small businesses has decreased by some $40 billion since the second quarter of 2008, going from more than $710 billion to less than $670 billion in the first quarter of 2010, according to figures from the Federal Reserve. “It’s definitely harder to get a loan even though banks have a great deal of money to loan,” said John Feldman, President and CEO of First Commerce Bank. “We just have to make certain borrowers can meet our criteria.” It’s not that banks don’t want to lend or don’t have money to lend, after all, lending is the way banks make their money. The problem is the lack of credit worthy business borrowers, according to bank executives. Many businesses have been impacted by the downturn and are looking to reduce their debt instead of increasing it, especially if they are uncertain of their business prospects going forward. Those that do want to borrow may not meet the requirements. Among many factors, the significant drop in real estate values since the start of the recession may have left many small business owners with no equity to borrow against. Problems in commercial It’s especially hard to get a loan for commercial real estate transactions, according to Dennis Dishaw, President of ACI Capital, Inc. a Tarzana-based firm that specializes in placing loans for commercial, apartment and owner user properties. “Lenders are often requiring the borrower have a net worth larger than the loan request, and because a lot of people have had to use savings and have seen their income drop, borrowers’ net worth is often less than what it used to be,” he said. With fewer lenders in the game due to bank failures, the number of lenders for commercial transactions is decidedly less. All-Time Low According to a recent Mortgage Bankers Association survey, applications for mortgages to purchase a home sank a seasonally adjusted 3.1 percent for the week ending July 9, compared with the week before. The MBA survey, conducted since 1990, covers about half of all U.S. retail residential mortgage applications. Freddie Mac released the results of its Primary Mortgage Market Survey July 14, in which the 30-year fixed-rate mortgage averaged 4.57 percent, an all-time low in Freddie Mac’s 39-year survey. Last year at this time, the 30-year FRM averaged 5.20 percent.

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