This is Why Our Economy is Recovering Slowly

[Art Shirk]

How does bitching about the inability to get lots of cheap debt to buy shit make your point? That's why things were fucked in the first place - lots of debt fueled inefficient investment. Bay Area remodels = inefficient investment

Now you are being dense. Good debt is good for everyone in the chain. Want to bread the red herring and add a side of tartar, or ....? I'll assume the ellipsis.

[TahoeJ]

Whats your income ratio. I see that you make good money but what is your debt to income? Thats pretty much the first thing they look at now. You won't make it past go if you've got high debt. I'm going to assume you dont and ill ask some loan officers at work why you are having a problem.

17% last year... 14% this year... not even close to 28%. Looking at that first makes absolute sense. And that's the thing, most lenders for NorCal properties will barely even get there it seems like with a re-fi. All they want is loan to value. Seemingly working within set guidelines / restrictions without taking other factors into account. Which suggests to me that interest rates are too low for them to even bother unless there's full equity to account for the loan / credit line. I guess? So much for manipulating interest rates to encourage more lending... (I realize that's a huge oversimplification)

[Benny Profane]

You don't own your house. The bank owns it, until you finish paying off the loan they gave you in order to use it. That loan probably is underwater, if you live outside of Manhattan or DC or downtown SF. The bank will not let you use that house for collateral on a new loan until they are sure it has stopped dropping in value and has started to become more valuable in the market. That may take some time. A long time.

[OSECS]

You don't own your house. The bank owns it, until you finish paying off the loan they gave you in order to use it. That loan probably is underwater, if you live outside of Manhattan or DC or downtown SF. The bank will not let you use that house for collateral on a new loan until they are sure it has stopped dropping in value and has started to become more valuable in the market. That may take some time. A long time.

We're toying with the idea of downsizing and started looking for something smaller. There are bidding wars going on for homes in our area now, so the markets aren't over valued outside the major markets everywhere. We looked at homes listed one day and selling in less than a week (one day in some cases) for more than asking price, and these were homes in the city, in bad school districts.

[Benny Profane]

Right. The bidding war thing is a marketing myth pushed by those with skin in the game, and, well, the WSJ. The only bidding wars are for low end homes by "investors" who are anyone from individuals to private equity actors chasing yield. It's another small real estate bubble that will not end well, as in Vegas right now, which is seeing rents drop because there are too many of these homes in the rental market, and too few jobs.

[liv2ski]

Well, actually, getting a loan secured by a 2nd on a house encumbered with a 85% LTV 1st would have been difficult in 2005.

Nope, we were going 100% with no Income Documentation in 2005. That is why you can't get a HELOC or 2nd to 90% anymore. If you need more room TJ, just sell and move into a bigger place as I think it is pretty much impossible to get a construction loan anymore unless your at a lower ltv.

[OSECS]

Right. The bidding war thing is a marketing myth pushed by those with skin in the game, and, well, the WSJ. The only bidding wars are for low end homes by "investors" who are anyone from individuals to private equity actors chasing yield. It's another small real estate bubble that will not end well, as in Vegas right now, which is seeing rents drop because there are too many of these homes in the rental market, and too few jobs.

Yeah, uh huh, that "myt"h.... It is reality in some places....... Richmond , Va. Close family friend is a listing agent of 2 of those mythological bidding wars. Listed a home on a Thursday had two offers for $5K over asking price before the weekend was out. One of her associates had another house that sold in one day of listing. So your whole mythological world just came crashing down on your head.....The minotaur says "hey".

[Benny Profane]

Read my whole post. I didn't say these "bidding wars" didn't exist. They are either just very very localized or driven by specific market forces very different from those in '04. You need to step back and look at the macro view before you get so enthusiastic.

[OSECS]

Read my whole post. I didn't say these "bidding wars" didn't exist. They are either just very very localized or driven by specific market forces very different from those in '04. You need to step back and look at the macro view before you get so enthusiastic.

My mistake sorry, my enthusiasm got the best of me........ Yes very different than the last bubble, but encouraging for our region none the less.

[chatton18]

I don't think its a bad thing that you have to go through a little more work to get this loan personally. I'd much rather see people have to put some work into getting a loan so they're not doing it on a whim and it ensures that you're credit worth etc. I'm sure that you are, however, there are a lot of people out there that aren't and trying to get loans they can't afford.

Have you tried going to a local bank to get a loan, they tend to have different lending practices than the big bank cookie cutter forms and will take time to get to know you and your situation - the old relationship banking model.

[KillWW]

Why would banks give loans to businesses, or even people with good credit these days, when they can just borrow from the discount window at 0.75% and buy 2 year Treasuries at 1.5%? That's risk-free money. If the Fed would stop with the printing press, and the (irrational) fear of deflation, banks may have to get back into the business that makes them banks, and small businesses might once again have access to the capital that drives our economy in the first place.

[Benny Profane]

Why would banks give loans to businesses, or even people with good credit these days, when they can just borrow from the discount window at 0.75% and buy 2 year Treasuries at 1.5%? That's risk-free money. If the Fed would stop with the printing press, and the (irrational) fear of deflation, banks may have to get back into the business that makes them banks, and small businesses might once again have access to the capital that drives our economy in the first place.

Access to capital is not the problem. Lack of demand is.

[XXX-er]

I think the banks are supposed to make you jump thru hoops, they are not supposed to give money away they are supposed to lend it out with the expectation of getting it back and then some so if its hard to get a loan that is a good sign

This recovery is not going to quarters, its going to take years if not decades ... you had the party now its time to pay for it

[wooley12]

Access to capital is not the problem. Lack of demand is.

Really? That's not what my successful small business friends tell me.

[Benny Profane]

Really? That's not what my successful small business friends tell me.

Have they also told you that they can no longer tap the home equity line for the borderline profitable business they set up in good times?

[TahoeJ]

I don't think its a bad thing that you have to go through a little more work to get this loan personally. I'd much rather see people have to put some work into getting a loan so they're not doing it on a whim and it ensures that you're credit worth etc. I'm sure that you are, however, there are a lot of people out there that aren't and trying to get loans they can't afford.

Have you tried going to a local bank to get a loan, they tend to have different lending practices than the big bank cookie cutter forms and will take time to get to know you and your situation - the old relationship banking model.

Agreed on both points. And yes, I talked to a friend of a friend today who works for a smaller lender and the loan isn't going to be a problem because of my debt-to-income ratio. My initial surprise and the reason I started this thread was that the larger banks barely even care to look at that right now - it's strictly about equity, which most people don't have enough of after the real estate decline. That's a really bad sign in terms of economic growth.

Why would banks give loans to businesses, or even people with good credit these days, when they can just borrow from the discount window at 0.75% and buy 2 year Treasuries at 1.5%? That's risk-free money. If the Fed would stop with the printing press, and the (irrational) fear of deflation, banks may have to get back into the business that makes them banks, and small businesses might once again have access to the capital that drives our economy in the first place.

I couldn't agree more. Exactly. And the way the fed is artificially keeping interest rates low doesn't help matters. If you can make a few percent interest with zero risk, why expose yourself to risk for only a tiny increase in potential profit?

Access to capital is not the problem. Lack of demand is.

I used to believe this and a few years ago it was true, but I've seen way too much evidence more recently (friends who own small businesses, etc.) that suggests otherwise.

I should also say that when I said "fuck the banks" that was actually misguided and said on a whim: they're just acting rationally in the current marketplace environment, taking advantage where it makes most sense. It's not their job to stimulate / grow the economy unless properly motivated to do so.

[GeezerSteve]

Nope, we were going 100% with no Income Documentation in 2005.

Right, in 2005 you could get a loan secured by a 2nd behind a 85% LTV 1st if you committed fraud by overstating your income. The other way people got loans in that circumstance happened when the appraisers committed fraud.

My initial surprise and the reason I started this thread was that the larger banks barely even care to look at that right now - it's strictly about equity. . .

Well, of course from the bank's perspective it's about the value of the collateral -- and that's the way it was for decades until 10 or so years ago when lenders found a market to sell a bundled sliced and diced B paper on the notion that US residential property values would outpace inflation for eternity. A 2nd behind a 85% LTV in this market is virtually worthless collateral to a lender, i.e., the bank's risk analysis is virtually the same as that of an unsecured loan.

And BTW does your claimed 14% debt to income ratio include the debt on your house? Didn't think so. Debt is debt.

[Art Shirk]

is this part of the usual douche call out? need to mark my score sheet correctly

Put an asterisk next to it. I was drinking.

[liv2ski]

Right, you could get a loan secured by a second behind a 85% LTV 1st if you committed fraud by overstating your income. The other way people got loans in that circumstance happened when the appraisers committed fraud.

Steve, so what is your point? When we were doing these loans I told the VP in charge of the wholesale lending channel at Wachovia, we as an industry should not be doing Stated Income loans, as that practice encouraged borrowers and their loan officers to overstate their income to qualify. We also offered No Doc loans on 1st TDs which didn't ask for income (hence no fraud) and I wanted that doc type on the HELOCs and 2nds. He told me there was little investor appetite for No Doc/No Income type loans and even though we all knew what was going on with Stated Income, that was what the Investors wanted to buy until it all went wrong with declining values. Now we will pay the price for those loans as the pendulum always swings to far the other way. It could take another 5-10 years before banks are making HELOCs/2nds to 90% ltv again. And the days of the 110% home improvement 2nd are likely gone for my life time, but we will see.

Why would banks give loans to businesses, or even people with good credit these days, when they can just borrow from the discount window at 0.75% and buy 2 year Treasuries at 1.5%? That's risk-free money. If the Fed would stop with the printing press, and the (irrational) fear of deflation, banks may have to get back into the business that makes them banks, and small businesses might once again have access to the capital that drives our economy in the first place.

And this is pretty much dead fucking on IMO.

[TahoeJ]

And BTW does your claimed 14% debt to income ratio include the debt on your house? Didn't think so. Debt is debt.

Stop assuming. Of course it includes the existing loan on my house (I'm not an idiot), as well as my car loan (which I only did because it was 0% interest). No other debt.

[GeezerSteve]

You must mean debt service to income ratio, right?

If your debt to income ratio were 14% -- and thus you could pay off your house within the next few months by eating out less often -- you wouldn't need a loan to do a remodel.

[TahoeJ]

You must mean debt service to income ratio, right?
If your debt to income ratio were 14% -- and thus you could pay off your house within the next few months by eating out less often -- you wouldn't need a loan to do a remodel.

Yes. From a consumer perspective when asked for DTI it's the percentage of your monthly gross income that goes towards debt obligations, no? Typically (or used to be) 28 - 30% is/was the cut-off point.

As noted above, I was offered a loan / re-fi this morning, so my particulars are kind of irrelevant at this point. My intention of this thread was to look at how big banks are evaluating potential loans right now and that it seems like a bad sign for significant economic growth.

[GeezerSteve]

Steve, so what is your point? When we were doing these loans I told the VP in charge of the wholesale lending channel at Wachovia, we as an industry should not be doing Stated Income loans, as that practice encouraged borrowers and their loan officers to overstate their income to qualify. We also offered No Doc loans on 1st TDs which didn't ask for income (hence no fraud) and I wanted that doc type on the HELOCs and 2nds. He told me there was little investor appetite for No Doc/No Income type loans and even though we all knew what was going on with Stated Income, that was what the Investors wanted to buy until it all went wrong with declining values. Now we will pay the price for those loans as the pendulum always swings to far the other way. It could take another 5-10 years before banks are making HELOCs/2nds to 90% ltv again. And the days of the 110% home improvement 2nd are likely gone for my life time, but we will see.

I already made my point. I saw it. Most 2nds were going to people overstating their income. That's fraud. Yeah, I know that by 2004 and 2005 there were institutional buyers for sliced and diced bundled loans who were betting on the absurd notion that US single family residences would outpace inflation into perpetuity. But that was not normal. I'm pretty sure that banks were not routinely making 90% LTV 2nds between WWII and the mid-1980's. The banks wrote millions of those loans in the 2000's only because they could sell the paper to the bigger fool.

[TahoeJ]

I already made my point. I saw it. Most 2nds were going to people overstating their income. That's fraud. Yeah, I know that by 2004 and 2005 there were institutional buyers for sliced and diced bundled loans who were betting on the absurd notion that US single family residences would outpace inflation into perpetuity. But that was not normal. I'm pretty sure that banks were not making 90% LTV 2nds between WWII and the mid-1980's. The banks wrote those loans only because they could sell the paper to the bigger fool.

You're both right IMO. I will add that in California, at least in certain counties, first time home buyers were only required to have 5 - 10% for down payment, without PMI. I assume this is because real estate prices were so inflated that not enough potential buyers could pony up 20%, so they did this to "keep things going" - which of course made everything worse. I don't remember when this started, but it definitely happened for a stretch.

[GeezerSteve]

Yes. From a consumer perspective when asked for DTI it's the percentage of your monthly gross income that goes towards debt obligations, no?

Oh, so you're saying that "debt to income" aka DTI is a term of art used for consumer loans, and that "debt" as used in that term of art really means "monthly minimum debt service." Okay. I don't spend much time looking at consumer stuff but I do routinely look at biz financial statements, where "debt" means "debt."