Reality OR Fiction – Is Lending Happening?

Everyday I am still surprised even astounded by borrowers. Recently, I received a request for a second position loan on a commercial property from two different brokers within couple of days of each other. I thought, I had the deal figured out with the first broker, but in reality the borrower was shopping. I am always struggling in such cases deciding if I should approve the financing or not. Brokers know that there are limited loan options today and that once they have a lender interested, they should stick with it. However, it seems that borrowers are still in a state of denial, they are acting as if money was flowing in freely. Borrowers do not appreciate that interest rates are now starting to reflect a combination of risk and availability of capital.

In the following article from the New York Times “Bank Survey Shows Credit Is Growing Even Tighter” going over a survey by the Federal Reserve, it clearly indicates that there is less credit / capital available. On a more anecdotal note, loan that are not insured by government institutions are significantly more expensive. As an example the residential jumbo loan 30 years fixed from Wells Fargo, full doc, was around 9% plus or minus recently. These are loans that will not be bought by either Fannie Mae or Freddie Mac. In the capital market for commercial properties, investors are limiting the number of loans they purchase by increasing significantly interest rates.

As a result while the federal government is supporting banks and financial markets there is still very limited liquidity and access to capital is restricted. I believe that this situation is going to go on for another year or so. For Private / Hard Money lenders this means that there will be a continued increase in demand for the capital that we have available. Because we have a limited amount of capital we will choose the “best” deals. It also means that both on the commercial and residential side of lending capital will be in short supply. For borrowers it implies that if they need financing and that they get an interest from a lender that is acceptable, not great, they should take it. Most likely, also borrowers and real estate professionals should get use to the idea that getting loans done is going to be more complicated and more expensive. Today lenders are in the driver seat not borrowers anymore, a NEW Reality.