The Competition for Money

In my last few post, I started to address the subject of capital availability. The picture is not any prettier today; in fact, it’s actually getting worse. This week, I was made aware of a number of new lenders that have stopped lending either because they are out of available capital to lend or just because they are shutting down programs. Professionals are roaming all over the world trying to drum up sources of capital to invest in American real estate.

During the past 30 days, a number of factors have made capital less and less available. More and more banks have restricted their lending abilities in the residential real estate markets. Numerous banks do not make any more such loans, while others are ceasing operations. A good source for this type of information is the blog Mortgage Lender Implode. What was once limited to the residential market is now also affecting the commercial market. More and more lenders in the commercial market are also not lending anymore either because of a lack of funds due to an increase in defaults or because they are going out business.

The lenders that are still lending are currently overwhelmed by the demand for funds. Today, lenders that have money are in the driver’s seat, and it may stay this way for the next 6 to 12 months. What was once considered expensive or excessive lending terms are today considered normal. In addition, if loan applications are not put together well, most likely financing will be denied.

My recommendation for professionals and borrowers alike is to do your homework. Don’t try to be clever if you have reasonable loan terms for today’s environment; just accept them. Make sure the information you provide is consistent and accurate. Be prepared to document information and to be as reasonable and precise as possible regarding values, incomes, reserves, etc. Be engaged and proactive in the process and cooperate with the lender. Have reasonable expectations. A loan approved today may not be available tomorrow. The situation is not likely to improve any time soon and may worsen.