I read, that in a survey of senior loan managers, they had tighten credit over the past 3 month period.
For nearly a decade, while prices push higher by loose credit standards, it was ok to give money away for any credit, for any high price real estate that moved decisively away from the trend line and moving averages. This was a time of high prices rises, that a prudent loan manager should of tighten standards, simple due to excess increases in prices. Now that the worry period is over and prices have come down and the risk of further declines exist, but considerably less by my trader's gut then when the market was roaring up, they tighten credit, when they should be loosing. A loan standards manager must think like a trader in any market. When the market goes up extremely you must look to take something off the table. In the case of a fund manager, that is credit standards tightening. The reverse is when a market has declined, no different than our stock market, you look to cut your shorts, and start adding longs. This would be loosening standards to get money out in a less risky market as to potential decline size. What is wrong with the brains of this country anymore? The proverbial cow is out of the barn now they want to lock the door and keep it locked. Maybe if they try now to leave the door open when there is no cow, maybe the cow will come back. By the cow, I mean the balance in the market. This is how to manage risk and do the job your business calls for.
It is accident prevention after the crash.
I don't mean to be wild like the past times that they were without rules. I mean to be reasonable against this market, to open up the door for the cow.
Richard
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I think the banks are tightening credit for different reasons... the main one is they are illiquid. They do not have a choice.
Jim:
I agree, that had been the problem. Now they are claiming too much risk. I think the risk was at twice the price. I guess they just lie! The government has filled their vaults with money. Now they are worried about it. Ha!
Richard
The government filled their valuts with our monies, and now they are reasing new cash...not to pay us back, but to cover more losses!
Our underwriting guidelines are INCREDIBLY ridiculous. Did you know it is almost impossible to get a conventional conforming loan on any type of condo here? They keep tightening and tightening and tightening. The people that can qualify win (obviously with low rates.) Like you, I worry about rates creeping up (and it could happen quickly) due to too much spending and to alleviate the risk.
I am having a little trouble getting my clients approved for loans here in California as well. I believe the cow has left the barn and is on vacation.
Richard, Due to the history, I believe the banks should have tighten credit at the market high instead of opening the flood gates...
I would rather deal with slightly higher rates (in the 6s and 7s) than these guidelines that are getting beyond ridiculous. I can see balancing risk but now we are going a little too far. I may be one of the few who is happy rates went up today.
Your blog rocks!
Richard - Great blog and comments here. I agree with the comments that the way the guidelines have been tightened is just plain crazy. As Renee said, getting financing on a condo is super hard. In Philly, investors are having a tough time getting financing on investment properties as well. Hopefully things will loosen up a bit in the next 6 to 12 months. The sooner the better ! ~ Chris
Jim, Renee, Elaine, Paul, Christopher and Stephanie:
I really think without securitizing we will not get enough capital to carry. The banks don't have the capital to lend, so they get very tight standards. At the way to the top, they manufactured money out of the thin air, so to speak, securitizing with bogus ratings.
Structurally we need inovation to recreate our capital markets. The issue on the surface is higher rates unless the fed has some other way to woo capital to our markets.
Richard
I just read they will be tightening the standards Michael Cantwell wrote:Arizona, California, Florida and Nevada as the new minimum credit score for LTV's greater than 80% is going to be 720!