Hatteras Island Real Estate:
What’s going on with lenders?
By TOM HRANICKA
For the past several years when asked about the availability of funding
for residential transactions, I have responded with something like
“underwriting standards have become stricter across the spectrum of
loans, but financing is readily available for qualified buyers for loan
amounts of $417,000 or less.”
As much as I hate to admit it, I think I may have been too easy on the
lenders. Then again, the lenders may simply be reacting to
dysfunctional regulatory environment within which they find themselves
operating. Whatever the cause, the reality is that regardless of a
borrower’s financial qualifications, the path to getting a loan these
days can be a long, hard, nerve-racking process.
As I understand the situation, these are some of the factors
influencing the loan approval gauntlet that buyers are facing:
- One of the
issues is that the capital requirements for banks have increased,
limiting their ability and their desire to lend. The politicians have
insisted that banks build up substantial reserves in response to the
risky lending practices of the past.
regulations actually penalize banks for making loans and reward them
for holding cash and Treasury bonds.
have become increasingly detailed and rigid, leaving little room for
personal discretion by the loan evaluators.
has become so pervasive that mortgage lenders virtually have a federal
watchdog in their offices looking over their shoulders. If the lender
makes a mistake, they may have to buy back the loan, substantially
reducing their profit on other loans.
national finance expert, Fannie Mae and Freddie Mac have made it
increasingly difficult for potential borrowers to qualify for loans,
and they have reduced the number of those who qualify for the best
individuals are facing an especially difficult underwriting process
because of the challenges they face meeting income documentation
requirements relative to the loans they are seeking.
established relationships that borrowers have had with lenders do not
make the underwriting process easier, and there is no assurance that
their loan will be approved.
values mean that some homeowners may not be able to demonstrate that
they have 20 percent equity in their homes to qualify for refinancing.
there are so
many distressed property sales in the market, appraisers often have to
use these transactions as the comparable standard in their
determinations of value.
To get a loan today, a borrower must produce a profile that essentially
presents no risk to the lender. I am certainly not advocating
return to the days of irresponsible underwriting and exotic loan
products. However, I do think that the pendulum has swung too far away
from reasonable underwriting practices. A recent Reuters’
described in detail the hurdles that borrowers are encountering. You
may find this article very informative reading at http://tinyurl.com/2ehaz48.
I definitely do not want to leave you with the impression that buyers
can’t get loans for the properties that they plan to purchase or that
sellers want to refinance. Quite the contrary. There is a lot of money
out there, and the vast majority of loans are ultimately approved.
Actually, there couldn’t be a much better time to buy with both prices
and interest rates at very low levels. The point that I want to make is
that the loan process is no longer as simple and as streamlined as it
used to be.
If I could offer just one suggestion that might make your loan
experience less stressful, it would be to use a local lender. They know
the market, and they have established relationships with their
To gain a realistic and balanced understanding of the loan application
process, I encourage you to contact one of our Hatteras Island
Realtors. Being armed with factual information and determining the best
lender for your personal transaction before you enter the loan process
can go a long way to making your financing experience more enjoyable.
(Tom Hranicka is an associate broker with Outer Beaches Realty.
Questions, comments, or suggestions for future articles may be sent to
Tom Hranicka at P.O. Box 237, Avon, NC 27915, or e-mail to [email protected]
Copyrightę2010 Tom & Louise Hranicka. All rights