Lending criteria being tightened

[drelly]

As a direct result of the credit crunch and increased costs of offshore borrowing, Sovereign have just announced that they are tightening criteria for higher risk lending. Effective Monday 22/9/2008.

· Lending on investment properties will be limited to a maximum LVR of 80%.
· Low-doc loans will be limited to a maximum LVR of 70%.
· Top-ups for existing Low-doc customers will be limited to a maximum LVR of 70%.
· Low-doc lending for new borrowers will no longer be available for occupation types –
Building, Construction, Real Estate, Property Developer, Property Investor and related
industries. Existing clients in these industries requiring top-ups are restricted to a
maximum LVR of 70%.
· All Low-doc loans regardless of the LVR will attract an interest rate margin of +1.0%
· All Low-doc loans, regardless of the LVR, will incur an LMI fee (as detailed in the table
below).
· Open-ended Bridging loans will no longer be available.
· ‘Go First’ loans will no longer be available.

Anyone have any information on other lenders?

[Steve Netwriter]

Sounds just like the UK a few months ago.

Predictable or what ?!

Does it take economics 101 to figure out what effect that will have on the demand side of the housing market ?

[Heg]

My broker told me about this last week. Apparently when Sovereign looked into who was defaulting on their loans it was the builders/investors etc who had the worst track record. Hence the new regs...

I wonder when the rest of the banks will follow suit

[Heg]

p.s Ridiculous if you think about it.Loans to buy houses more difficult and more expensive to obtain for the people who buy houses.....

[outspoken]

p.s Ridiculous if you think about it.Loans to buy houses more difficult and more expensive to obtain for the people who buy houses.....

Only for the rogue ones Heg. The Lo-Doc variety.
If you can provide financials, you're sweet.

[Heg]

Only for the rogue ones Heg. The Lo-Doc variety.
If you can provide financials, you're sweet.

never considered myself a "rogue" before. I have been called a lot worse mind you

[Gatekeeper]

Only for the rogue ones Heg. The Lo-Doc variety.
If you can provide financials, you're sweet.

Indeed! It's come down to real money now, not the "on paper" sort that a lot have been counting on. Real income, real capital. All this crisis is doing is showing things for what they really were/are, the damage has already been done and there is no way out but to see it through.

If you are cash rich, have patience, as the funny money is destroyed yours will gain in value much more than the interest value, it already has (deflation in housing, stocks etc).
The inflation side (food & energy) is where you could also invest to keep your costs down. Human energy is pretty cheap, use it daily or it is wasted.

[roseneath_rat]

These moves are prudent in my opinion, expect conditions to tighten further on any borrower with multiple property exposures. Much of the flexibility to work outside of policy & guidelines is rapidly disappearing. Anything with a speculative nature is almost certain to be declined through a mainstream bank. Even if the criteria hasn't changed on paper yet, credit criteria is definitely shrinking (as it should do in these conditions).

[mortgage broker]

I wonder when the rest of the banks will follow suit

I think in terms of these changes they have just caught up with the major banks.

[fpl]

These moves are prudent in my opinion, expect conditions to tighten further on any borrower with multiple property exposures. Much of the flexibility to work outside of policy & guidelines is rapidly disappearing. Anything with a speculative nature is almost certain to be declined through a mainstream bank. Even if the criteria hasn't changed on paper yet, credit criteria is definitely shrinking (as it should do in these conditions).

Interesting...

A friend of mine has told me years ago when I started investing that: “Banks are good weather friends. They give you an umbrella when the sun is shining and take it away when it's raining.”
Surly half of the NZ working population who work in real estate related industries suffer from having their income levels seen declining by 40-60% this year.

As Donald Trump said: “No bank or any lender is forced to lend money. Banks do this freely and willingly.” The difference is that Donald owed them so much that he had some power and could buy himself time so sort it out. Whereas for most the “power” is with the bank and they are calling loans when property values (on paper) fall and/or clients get behind with the payments. (20% of all loans are >2 months behind payment in the US)

That’s exactly at the time when an umbrella is needed the most.

[outspoken]

I think that's because the Banks and finance Companies lent to people with no real Capital behind them at all.
Mark Bryers is a classic example. He was a nobody until he tapped into the no-doc lending for himself. What's worse is related entities fraudulently used it to dupe Mum & Dad out of their hard earned assets.
He had no Capital, he used no-doc lending to become a rich-lister, when the Ponzi scheme got busted, he is supposedly Bankrupt.

Same in the U.S, they gave no-doc loans to people who just shouldn't have qualified.

As GK has said, it's come back to lending to people who can prove they can service it.

The Banks & FC's gave out umbrellas, like golf tournament prizes that got trashed in the boot of the car not realising they were valuable, now you have to buy them.

[fpl]

What is real money? In my wallet I find its paper or plastic. It’s a promise for a certain value. And for the risk adverse it even states “In God We Trust” (US $) One who studies money and the origin of if may discover that it was invented and made up a long time ago. No different these days.

“Real” income and “real” capital is not going to help survive. Cash Flow is. See Freddie Mac, Fannie Mae, AIG etc in the US Hannover in NZ may survive because they were able to secure cash flow.

Cash rich = gain. I assume you mean your cash. Perhaps a very slow and hard way to gain anything significant? Doesn’t gain = ability to attract other people’s money. In terms of how much one can leverage OPM or what value others see in what the offer is.

[fpl]

Outspoken


I think you need to more research. Bryers wan't a nobody. He's been around a long time. Alt A mortgages are not subprime / low / no doc loans in the US. There are "middle" class loans with people with high incomes. eg $US 200k plus. Furthermore, not all people are loosing their home because they can not longer service the loan. It's just as commen they that's happening because the "paper" value has fallen below the value of the mortgage.

And sorry but an umbrella is to protect and assist you not to give you money or to play golf.

[outspoken]

One who studies money and the origin of if may discover that it was invented and made up a long time ago. No different these days.

Yep, and it is 'invented' out of 'thin air' to fuel exponential growth. Thus has to be produced exponentially
Unsustainable. IMO

[roseneath_rat]

Interesting...

A friend of mine has told me years ago when I started investing that: “Banks are good weather friends. They give you an umbrella when the sun is shining and take it away when it's raining.”
Surly half of the NZ working population who work in real estate related industries suffer from having their income levels seen declining by 40-60% this year.

As Donald Trump said: “No bank or any lender is forced to lend money. Banks do this freely and willingly.” The difference is that Donald owed them so much that he had some power and could buy himself time so sort it out. Whereas for most the “power” is with the bank and they are calling loans when property values (on paper) fall and/or clients get behind with the payments. (20% of all loans are >2 months behind payment in the US)

That’s exactly at the time when an umbrella is needed the most.

If you're worried about the quality of loans you already have out there, surely the first thing to do is to stop writing more shonky loans. Banks are still lending money, they will just be doing it to people with track records of good cashflows and genuine equity. They will not be lending it to high risk industries that are most exposed to lower house prices or new development.

Banks are not charities, and are not in the market of sharing business risks. Having seen numerous businesses fail, there are relatively few of them that benefit by throwing good money after bad.

Borrower: I would like to borrow a large sum of money.
Bank: OK, what will you use the money for?
Borrower: I would like to buy an alpaca/currency option/auckland apartment.
Bank: Gee, those seem a bit risky to me. How much money are you putting into this yourself?
Borrower: None.
Bank: Excellent, we'll match your contribution.