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The banks are still not lending and I hear every excuse in the book. I accept the fact that lending practices are much more restrictive than they have been in the recent past. I also understand that banks are trying to conserve capital against volatile and unpredictable market gyrations. However, the pendulum has swung too far to the conservative side.Here is a recent example from a deal I was able to get done but it took three times as long as it should have. First the appraisal by my estimation was 10% to 15% low -- no one is sticking their neck out. I know this because I am seeing weekly transactions in the neighborhood. Then the maximum loan to value has gone from the ridiculous 100%, which no sane person should have done, to 70%, the bank in this case Wells Fargo & Company (NYSE: WFC), said it was because it wanted to maintain its AAA rating.
Another bit of pain. After I had everything in place, in the case of a home loan, subordination became an issue! Things are so specialized and compartmentalized that the lender has different underwriters and standards for its First Trust Deeds and its Home Equity loans and since I had both, the HELOC (a form of second mortgage) had to be subordinated to the First.
Guess what, they would not do it. Even though the bank was in essence subordinating to themselves!
Well, thanks to the patience and diligence of my loan officer Mike M. and some negotiating by me and several of my advocates, the loan went through with the required subordination, but it was way too hard and took duplicating the paperwork as if I was dealing with two different institutions.
All this effort for a high net worth individual with a clean balance sheet, plenty of equity and a great credit score. The money being distributed to the banks by the tens of billions may be cleaning up their balance sheets, but if it was meant to stimulate lending, it's not -- the loans are only trickling out.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure I own shares of WFC.
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Reader Comments (Page 1 of 1)
12-18-2008 @ 7:35PM
william lindblad said...
Yes, and two months ago they probably would have balked!
Fear factor. They are afraid of each other AND the consumer. ????
Usually, when this type of condition arises there will be some lender willing to take the bull by the horns (and grab everything they can) while the others meditate. So far this is not happening. I had a similar incidence, however I already had it covered as I was playing one against the other looking for best rate. Well I did as two weeks later neither would have moved!
My economic credentials are excellent too!
The banks started this mess and are doing nothing to mitigate it. More poor policy after poor policy. They have forgotten what good lending practice is.
This confirms my position that the government should have let them flounder as coming to their aid is proving to be a detriment. Someone please tell me why it is prudent to support bad judgment?
Perhaps it is good to support and executive end that has parties to celebrate taxpayer cash. With this kind of leadership the middle class has little to worry about - except getting eliminated.
12-18-2008 @ 11:59PM
Boagrius said...
There is so much off-balance sheet cr&p at the banks, they are scared of each other because NO ONE KNOWS how much cr&p ACTUALLY exists...go read the FED research...it's full of estimates, they don't yet have a firm handle on what they are dealing with...who knows how long it will take for the bean counters to figure out how many beans there really are?
12-19-2008 @ 7:45AM
Virgil Bierschwale said...
I'm beginning to think that everybody has lost their common sense.
Banks only lend money to those that don't need it.
That is how they got as big as they are in the beginning and it appears that they are returning to their roots which is something they should do.
Now if they will just quit being highly leveraged and go back to a 5 to 1 leverage ratio, they will be in an even better position to loan money to somebody that doesnt need it.
Virgil
http://www.KeepAmericaAtWork.com
12-19-2008 @ 9:03AM
BHarrison said...
"Creative accounting" is just another way of saying "FRAUD". How does any entity come up with "OFF BALANCE SHEET ITEMS" in a "balanced accounting system".
It is an oxymoron to have "off-balance-sheet items" in an accounting system.
It is equivalent to an individual entering into an agreement with ther bank for the bank to not include "some of their cleared checks in their bank report" (but the bank would still pay the payees on those checks). The corporations basically did the same with their investors (stock holders); but they didn't disclose "the facts" to the stock holders".
Fraud is fraud, is fraud.
Sound accounting principles work and are fully reliable . . . it is the "creative accounting practices" that enabled the undermining of sound business practices and accounting principles. Any intelligent and knowledgeable business person or regulator who becomes involved in "creative accounting practices" KNOWS that they war "walking the line" (or overstepping) what is legitimate and what is not. Those who chose to do this, ARE GUILTY if their actions result in FRAUD.
"Crative accounting principles" should be totally outlawed.