Is the lending market drying up?

By Joel Persinger
YourRealEstateDude.com

This past week I received a couple of emails and a phone call or two from lenders addressing some changes in company policies. It would be fair to say that some had to do with loan approval requirement and programs and others represented changes in response to an increasing number of fraudulent loans that the lending companies have gotten stuck with.

A few of the lenders in question have tightened their requirement for borrowers. As a result of these changes, it appears that borrowers are going to have to produce more information, have better credit, have a history of solid employment and jump through other such hoops in order to get a loan. Basically, the lenders want the borrower to be able to prove that he or she can actually repay the debt. This may not sound like a novel approach, but it stands in stark contrast to the recent real estate boom, during which time just about anybody could get a home loan as long as they could fog a mirror and maybe sign their name with something other than an “X”.

In the case of another lender, I received a copy of an internal memo which addressed the fact that the lender had experienced a problem with fraud. According to the memo, some loan officers had generated a significant number of fraudulent loans. This resulted in loans that could not be resold on the secondary money market. Many lending companies generate loans and then sell them, thereby earning money for generating the loan and recovering their investment once the loan is sold so that they can lend that same money over again. When lenders cannot sell a loan on the secondary market, they must hold the loan and service it themselves. This means they cannot recover their investment quickly and, therefore, potentially have less money to lend when you and I bop by asking for a loan.

At just about the time I received these emails and became concerned about the availability of money for home loans, I received a telephone call from one of San Diego County’s larger credit unions informing me of a program they are offering in which there are first time home buyer loan packages with 30 year fixed rate loans as low as 6.5%. Given these apparently mixed messages, what is the average guy on the street to think?

The bottom line is that some lenders have been hurt by their own foolish lending practices. During the real estate buying frenzy that occurred a couple of years ago they lent money to people who should never have been able to get a loan. Then they dreamed up crazy loan packages that amounted to nothing more than ticking time bombs which are now blowing up all over the place leaving a wake of short sales and foreclosures in their path. Unscrupulous loan brokers and loan officers started popping up all over the place as a result. Fraud became a serious problem. This was a hard and costly lesson, and it is only natural that they should tighten their requirements after having learned it. But does that mean that there is no money to be had? If the credit union I heard from is any indication, the answer is “NO”.

The credit union representative who called me was excited about the home lending business. She has loan programs that are very competitive and money that is available to lend, but the borrower has to be able to pay it back in order to borrow it. What a concept! So, don’t let the “bad news” get you down. If you have good credit, a good job and have been responsible with your money, you may find that the home loan you’re looking for is waiting for you just around the corner.