Current state of real estate lending - Covid19 Recession

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Current state of real estate lending - Covid19 Recession

Joseph Weisenbloom
Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes

Been a whirlwind few weeks here with everything going on. I wanted to ask the lenders out there and those investors looking for loans what is the current state of real estate lending? Rates are low but are lenders making loans? Conventional and nonconventional loans?

Real estate runs on loans so if the lending market is drying up that seems to be indicator of less available buyers, lower housing prices and lower demand in many markets.

P.S. Im not looking for a loan just trying to keep my finger on the pulse of the market.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
from what i am reading here on BP  Non QM investor loans are seeing some of the major players Pause / stop for now.
Jumbo loans seem to have really tightened the criteria leaving few who could qualify it seems like There is no question of lending tightening up here in the short term..  probably going to have to hunt harder for those willing to do non owner occ
and credit scores will need to be very good and LTVs will get lowered.  so more cash will be needed.

for now I think the days of super high leverage are coming to an end for some number of months.

CASH will be important ..
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  • Joseph Weisenbloom
    OP
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    6y

    Thoughts?

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    from what i am reading here on BP  Non QM investor loans are seeing some of the major players Pause / stop for now.
    Jumbo loans seem to have really tightened the criteria leaving few who could qualify it seems like There is no question of lending tightening up here in the short term..  probably going to have to hunt harder for those willing to do non owner occ
    and credit scores will need to be very good and LTVs will get lowered.  so more cash will be needed.

    for now I think the days of super high leverage are coming to an end for some number of months.

    CASH will be important ..
    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    3Reply
  • Joseph Weisenbloom
    OP
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    6y

    @Jay Hinrichs I understand that this is going to be a short term tightening in lending. The question is how long will this go on? I assume the longer lending is cut off the lower housing prices will go. Being that it is real estate it won’t happen overnight. This could take up to a year to truely work its way through to lower prices for investors.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Joseph Weisenbloom:

    @Jay Hinrichs I understand that this is going to be a short term tightening in lending. The question is how long will this go on? I assume the longer lending is cut off the lower housing prices will go. Being that it is real estate it won’t happen overnight. This could take up to a year to truely work its way through to lower prices for investors.

    and it will be very regional.. were you had a lot of coastal HML companies looking for deal flow went west or east and they may just pull back to the markets they know best.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
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  • Eric Bilderback
    Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    From what I have read here on Biggerpockets and talking to folks I interact with.  Loans are locking up fast.  Investors are having refi’s canceled.  And for the time being it is very difficult to get appraisers and inspectors to get into places.  Not to mention the fact that we are shutting down entire industries.  A partner I have, his wife who is an accountant for one of the big custom builders in my area is laying off all of the workers today.  If I were a lender I would take a pause to see were this is headed.  I know I am pausing for now as an investor, although I would like to refi a couple of places (small multifamily) but as of now I can’t find any takers!  
     

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    6y

    Lender A: Rental property income cannot be counted no matter what.

    Lender B: Rental property income can only be counted with six months of PITI reserves.

    Lender C: Rental property income can only be counted with 50% of unpaid balances in reserve. If you have $1m in rental property mortgage debt, we will only approve your loan if you have $500,000 in a checking account.

    Lender D: No change to guidelines. But our rates for rental properties are in the stratosphere. 

    Lender E: No change to guidelines. But you can't lock the interest rate until the loan is cleared to close at the very end. But "trust us" the rate will be good, we just will not tell you what it is upfront. 

    Those are all actual lenders that I have actually used in the past. Two of them are household names. The no-names who you will not find on google are where most of my investor business is going for now. 

    Fun times all around. I think the spazziness will stop within a week or three. Here is the criteria that will get you "in on" the stimulus in terms of interest rate etc:

    Owner occ. 740 FICO. SFR. Loan amount below $510k. Rate and term, no cash out. W2 salary job, not self employed. No rental portfolio. Cookie cutter all around.

    Once ALL of those people are done locking in their refis, if there's anything left it'll be the landlords' turn. 

    2Reply
  • Joseph Weisenbloom
    OP
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    6y

    @Eric Bilderback @Chris Mason Thanks for the insight guys. I only see a nationwide downshift in real estate prices if a few things happen at once. 1. With 30% unemployment there will no doubt be a lot of people not paying their mortgage and being foreclosed upon. Not sure if the stimulus package will save them. This will result in more houses coming onto the market. 2. If loans become locked up for a long period that will slow down people from buying houses and also slow down investors from aquiring any distressed houses that come on the market. This will be a downshift in demand. 3. The logistics of home buying usually require folks to visit the property for sale. Currently people are not leaving their house so thats out of the question.

    Increased supply and lower demand seem to indicate potential lower prices. Not sure if this will play out more regionally or nationwide. We will see how this unfolds and how it affects real estate.

    Any lenders out there have any insights?


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  • Michael Ablan
    Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Joseph Weisenbloom -  My normal lender is trying to force me into a rate and term refinance instead of a cash out refinance.  I'm hesitant to accept, but I've already been underwritten with them on previous loans, so this would be a fast exit for me.  Going with a new bank right now who isn't familiar with my business would takes ages to get through UW, especially with the backlog everyone is working through right now.  

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  • Dane Fitch
    Investor · Gresham, OR · Member since 2015 · 39 posts · 21 votes
    6y

    @Joseph Weisenbloom the bond markets where many of these hard money loans are sold have completely dried up.  People are pulling out cash and waiting on the sidelines for opportunity.  Because of this, a ton of hard money lenders had to close up shop in 24 hours.  They just don't have the ability to recapitalize.  The rest of the lenders that are alive are anticipating defaults in the next few months as houses become more difficult to sell hence the lower leverage and tightening of criteria of rehab and FICO score.  

          What people need to understand is that this asset class is not how hard money used to be where the lender often made our better if they did indeed foreclose on the property.  Now, Lenders have to keep their default rates low to keep their securitizations intact.  

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  • Joseph Weisenbloom
    OP
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    6y

    @Michael Ablan @Dane Fitch

    Thanks for the input guys. At this time it seems like lending is drying up in anticipation of defaults. Any guess how long this may last? Weeks? Months? 

    It seems like the FED is doing what it can to grease the gears of the economy but how effective will it be? 

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  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    The tail on this is going to be LONG.  The banks are going to make the underwriting criteria really tough.  2019 was the loosest lending criteria in a decade and poof over night it was gong.  I fear the industry is going to take time to recover.  The bigger issues  are going to be liquidity and unemployment.  Getting money at any price and finding someone who can pay the rent. 

    1Reply
  • Joseph Weisenbloom
    OP
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    6y

    I hear rumblings that commercial real estate loans are in bubble territory right now. If we have a protracted downturn and a commercial loans start defaulting en masse will that spill over into residential real estate? @Lesley Resnick @Chris Mason

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  • Mary White
    Rental Property Investor · Klamath Falls, OR · Member since 2016 · 146 posts · 213 votes
    6y

    My loan was suppose to close a week ago, but my lender is dragging their feet. They said they need to recalculate my financial position. They keep saying that they're just backlogged because of the volume of refinances, but everything seems off. 

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