More difficult lending environment ?, Your views from the street please !! Options

[ThomasBeyer]

Banks are getting MUCH MUCH more difficult to deal with over the next year or more .. as they took a huge hit on the bad US sub-prime mortgage debt .. so they are looking to improve their cash position .. and a LOC means: a % of this LOC must be held in cash as a reserve by the bank under the Canadian Bank Act.

Expect banks to cut LOCs down WITHOUT WARNING - especially business LOCs and unsecured LOC. If you or your business needs the cash in the near future, I highly recommend that you draw on the LOC, pay the 4.75% interest and invest it at 3-5% .. an inconvenience and slight cost .. but a LOC could be cut back by any banks these days !!

Has this happened to you ?

Did you have a tougher time getting a mortgage with more paperwork than even 3 or 6 months ago ?

Share your positive or negative experiences in this post please !

This post has been edited by thomasbeyer2000: Sep 7 2008, 09:08 AM

[DonCampbell]

Hi Thomas,

You are right. We're going to witness a further tightening over the coming 18 months as the pendulum of too easy money swings to the other side of 'too difficult' money. When you combine this with the new banking regulations being put in place around the world next year, which restricts banks to the amount they can lend vs the amount of ready capital they have, and you have a perfect storm for financing in 2009.

Of course the fast swinging pendulum of the stock market didn't help them either as the market over-reacted to negative news (as it does when there is good news).

We can't expect immediate and simple renewals of existing mortgages (sure they may happen, but don't assume and hope). Be prepared for letters to arrive from some lending institutions stating that they no longer want to lend on investment property (or can't legally do so under the new banking regulations). Another reason why we state so strongly to 'treat your investments like a business.' Manage risk, maximize income build the strong relationships and surround yourself with people who want to help you. These are even more important during market turmoil.

That is why it is imperative for beginners (and veterans alike) to ensure we are making the absolute best case to our mortgage brokers and bankers. In otherwords the updated Sophisticated investor binders. No one should assume that their deal is financed just by making a few calls and signing a few docs (as it was like in 2006 - 2007). People sometimes ask, why do we discuss financing and mortgages at almost every REIN meeting, the answer is simple it is one of the most important, and least understood, and most volatile part of the investing business... and sophisticated investors (who over the last few years of easy credit) started to lose focus on this important component... but we will continue to keep the spotlight firly on the changes, strategies and numbers for you.

The Systems we teach are designed to assist investors in ALL market conditions - not just hot ones.

Thomas, as always, thanks for starting this important thread.

[realfortin]

I just bought my 1st two properties, arranged financing for them last week and will close by the end of the month. I didn't experience a big hassle from the lending institutions. The mortgage broker was VERY impressed with the sophisticated investor binder. He did ask for a few more pieces of information than what I presented but it was nothing out of the ordinary.

They did ask that I get an appraisal done but that was the only costly step.

As for my LOC, my unsecured LOC was reduced from 45,000 to 20,000 so there is definately some tightening of the restrictions by the bank.

[BlaisO'Brien]

I think you're right. The banks don't seem to know what to do any more, they're so concerned with the US crud.
I'm currently trying to finance my 15th property and my DCR is 1.7. The bank is refusing to do the mortgage retail (personally) and want me to use a commercial product (more expensive) because, get this- I'm making too much money with my rentals and it looks like a business!! Well duh, Isn't that the point! Doesn't that make their position more secure?
Any advice? Does anyone understand the bank? Do they?
Blais

[ChrisDavies]

Thomas, I'm in the middle of doing a mortgage on one in Edmonton. I'm hearing back from my broker that things are tightening, and a number of lenders are pulling their interest-only products, as well as being a little stickier about having every last bit of paper in order before even peeking at an application.

Blais, I can understand where the bank's coming from. Consider it from the default standpoint: 90%+ of defaults come from business/investor-type borrowers; the most reliable loans are homeowners. That said, I'm sure there's some good suggestions that will come from this discussion to help you out.

Cheers,

Chris

[TommyK]

It is interesting you brought this up Thomas.

I have a personal "unsecured" LOC that I set up in 2006. The limit is $30K at prime + 2%.

I just recently received a letter from TD Bank that they are increasing the interest to prime + 3%!!

There's definitely some tightening and increasing cost evaluated by the banks.

Has anyone received any letters from TD?

Tommy

[LeighF]

Banks are getting MUCH MUCH more difficult to deal with over the next year or more .. as they took a huge hit on the bad US sub-prime mortgage debt .. so they are looking to improve their cash position .. and a LOC means: a % of this LOC must be held in cash as a reserve by the bank under the Canadian Bank Act.

Expect banks to cut LOCs down WITHOUT WARNING - especially business LOCs and unsecured LOC. If you or your business needs the cash in the near future, I highly recommend that you draw on the LOC, pay the 4.75% interest and invest it at 3-5% .. an inconvenience and slight cost .. but a LOC could be cut back by any banks these days !!

Has this happened to you ?

Did you have a tougher time getting a mortgage with more paperwork than even 3 or 6 months ago ?

Share your positive or negative experiences in this post please !

[donksky]

Heard that as of today, the 0-down program, 40-yr am. for rentals is over for all lenders. Is this true? No more lenders will do this now?

[PeterKinchMortga...]

Heard that as of today, the 0-down program, 40-yr am. for rentals is over for all lenders. Is this true? No more lenders will do this now?

Any loans requiring insurance are no longer available with zero down or 40 year amoritizations. The 40 year am is still available conventionally, but far fewer lenders are offering it.

[LeighF]

Could they touch unsecured LOC's that are already in place?

[terri]

thomas,


does this include helocs as well? could they reduce the loc portion of my mortgage?

thanks for posting this,

Terri

[kanabel]

Could they touch unsecured LOC's that are already in place?

I have the same question. I have secured and unsecured lines of credit, as some of them are fully some partially and some not used at all. What could I expect, since that's my remaining buffer zone for eventual problems with properties, and I would stay pretty much "unsecured" myself if having this cut?
Thanks
Dejan

[ThomasBeyer]

Heard that as of today, the 0-down program, 40-yr am. for rentals is over for all lenders. Is this true? No more lenders will do this now?

What planet do you live on ? This was announced over a month ago !!

This is good news, as no serious investor or buyer should be given this kind of loan !

After this week's stock market crash expect mortgages to be EVEN MORE difficult to get .. especially for investors and sub-prime borrowers and any non-first home !! This will affect real estate prices .. downwards !!

Ensure that your credit score and borrowing behavior is up-to-date and super-clean !

[ThomasBeyer]

I have the same question. I have secured and unsecured lines of credit, as some of them are fully some partially and some not used at all. What could I expect, since that's my remaining buffer zone for eventual problems with properties, and I would stay pretty much "unsecured" myself if having this cut?
Thanks
Dejan

absolutely .. especially UNsecured ones !

If you need the cash .. access the LOC NOW .. and invest in a money market fund @ 3.5% .. so a prime - 3.5% = 1.25% cost !!

[ThomasBeyer]

thomas,


does this include helocs as well? could they reduce the loc portion of my mortgage?

thanks for posting this,

Terri

yes they could .. and in many cases: yes they will .. but a HELOC is less risk for bank than a LOC on a rental property or 2nd home .. and even safer than an UNsecured LOC .. but banks will at their discretion cut back .. given the liquidity issues all over the world right now ..