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More difficult lending environment ?

Thomas Beyer

Thomas Beyer

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REIN Member
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Aug 30, 2007
Messages
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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 !
 
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.
 
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.
 
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
 
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
 
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
 
QUOTE (thomasbeyer2000 @ Sep 6 2008, 08:15 PM)
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 !
 
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?
 
QUOTE (donksky @ Sep 17 2008, 12:35 PM)
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.
 
thomas,


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

thanks for posting this,

Terri
 
QUOTE (LeighF @ Sep 17 2008, 07:14 PM)
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
 
QUOTE (donksky @ Sep 17 2008, 01:35 PM)
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 !
 
QUOTE (kanabel @ Sep 17 2008, 08:01 PM)
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 !!
 
QUOTE (terri @ Sep 17 2008, 07:32 PM) 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 ..
 
QUOTE (thomasbeyer2000 @ Sep 17 2008, 08:24 PM) 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 !!

Thank you Thomas for your very helpful advices as always. I still have a question about the funds that I have already used from LOC and invested elsewhere, i.e. Money market, you are advising, or currently financed downpayments for my rental properties. Could they ask money back that has already been used, in my case for these purposes?
Hopefully not, since you are saying to invest elsewhere (MM), in which way I conclude I could therefore protect these funds. Am I right?
Thanks a lot, Thomas
Dejan
 
QUOTE (kanabel @ Sep 17 2008, 09:19 PM) Thank you Thomas for your very helpful advices as always. I still have a question about the funds that I have already used from LOC and invested elsewhere, i.e. Money market, you are advising, or currently financed downpayments for my rental properties. Could they ask money back that has already been used, in my case for these purposes?
Hopefully not, since you are saying to invest elsewhere (MM), in which way I conclude I could therefore protect these funds. Am I right?
Thanks a lot, Thomas
Dejan

This is Garth - not Thomas, but here is my take on this-

The bank can call your loan if it is a line of credit, as it is an open `due-on-demand` credit facility.

When banks get nervous, and when there is a scarcity of capital, they have been known to do a risk evaluation of their open credit facilities and call those loans that they judge as more risky. This happens to businesses at risk more often than you might think.

This may not happen very often at all, but the current financial situation is rare, maybe unprecedented.

In short, if you are a good risk and are making all your payments I`d bet you will be OK. If you used your LOC to buy stocks or mutual funds you could be at risk given the current stock market melt-down.
 
Thomas is the third person in a week who I has advised those with an LOC to max out the LOC, and to bank the money just to ensure it is on hand when it is needed.
 
QUOTE (thomasbeyer2000 @ Sep 17 2008, 07:29 PM) 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 ..

thank you very much for the tip,

I am in the process of borrowing from it to renovate another property, I will take it all out now to ensure that I have it when I need it.

thanks,

Terri
 
QUOTE (GarthChapman @ Sep 17 2008, 10:29 PM) This is Garth - not Thomas, but here is my take on this-

The bank can call your loan if it is a line of credit, as it is an open `due-on-demand` credit facility.

When banks get nervous, and when there is a scarcity of capital, they have been known to do a risk evaluation of their open credit facilities and call those loans that they judge as more risky. This happens to businesses at risk more often than you might think.

This may not happen very often at all, but the current financial situation is rare, maybe unprecedented.

In short, if you are a good risk and are making all your payments I`d bet you will be OK. If you used your LOC to buy stocks or mutual funds you could be at risk given the current stock market melt-down.

Thank you Garth and all others for these insights, I have taken out these funds now. BTW, friend of my just had his LOC from RBC cut from $25k to $5k, even though that was regarding approval of such, just before he signed that LOC with them.
Dejan
 
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