Signs of Change
It shouldn’t be a mystery that the lending industry is carefully rethinking their actions and changing their standards after last week’s crisis. So far, we have seen one of our several national lenders start to tighten their belt a couple notches in hopes of disqualifying more individuals for risky loan types such as the payment option loan, which is often sought after by investors looking to leverage for positive cash flow.
Blue Moon was advised early this week that the payment option loan type was still available to only strong borrowers with 680+ FICO scores, and with an additional 3 points at closing. To be fair, all loans are going to be requiring more “skin in the game” from the borrower, whether it be in the form of more points upfront or higher interest rates. The increased rates on loans across the board are a reflection of the lender’s uncertainty about what will happen over the next 30-60 days. Since they don’t’ have enough information to evaluate the risk at this time, they simply are charring above market rates to cover all contingencies.
Eventually, as it becomes more apparent as to what the real impact of the sub prime foreclosure chapter is, rates and underwriting standards will be brought into line. Today the impact to real estate investors is that they should expect tighter underwriting standards and additional costs, either upfront or over the course of the loan.
As we’ve seen in history, difficult situations in financial markets, being stocks or bonds, have brought opportunity to investors. The corrections in the global debt markets is no different. Experienced investors have made their fortunes during these market corrections. They simply have to know how to take advantage of the market by understanding what they are investing in.
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