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It’s the same old “unintended consequences” of legislation.  Or was it unintended?

In my lending business we lend to real estate investors who are buying properties for a business purpose only:  They buy houses in serious disrepair – the ones the banks won’t lend on for a home buyer – and fix them up and sell them to families who are happy to purchase a newly rehabbed home.  These are not speculators, they are business people who do this for a living.  They put significant capital and effort into repairing the property and making it habitable.

Why can't I get a mortgage?But every week I get a few calls from end buyers looking for financing to purchase a home.  Of course, one of the first questions I ask is the intent to occupy the property, since we don’t lend to owner occupants.  They are typically self-employed people who can’t qualify for bank financing.  So while they may have a down payment and good business history, it’s not enough to get them conventional financing in this current climate.  When I explain to them that I can’t help, they ask for a referral to someone who can – a private lender who lends on owner-occupied properties. And guess what?  Most of them are out of the residential lending business, so I have no one to refer them to.

Why?  Because the SAFE act passed in 2009 effectively eliminated private lending to homeowners – the buyer who is going to live in the home.  How did this happen?  Well, Sub-prime lending and mortgage brokers were cast as the villains in the recent financial crises and housing bust.  So our federal government decided to require that all lenders be licensed and enacted the SAFE Act, with a requirement that each state enact its own version of the bill.  The SAFE act outlines the requirement for all lenders who lend on residential properties to become licensed.  Sounds ok, doesn’t it?  Who could argue with that?

But the requirements for lender licensing were designed for institutions, and include expensive bonding and lender experience requirements.  The average small lender with a few hundred thousand to lend as part of an investment portfolio is unlikely to meet the experience requirements.  And won’t want to hassle with the bonding expense and aggravation.

In addition, the term “witch hunt” comes to mind.  In an effort to “clean up” the loan origination business, banking departments and attorneys general are showing voters how diligently they are working to make the crooks accountable.  But it’s all too likely that private lenders will get caught up in the crossfire, even if they’ve done nothing wrong, and are by no means “predatory”.  So many simply decided it was too much hassle for the return.  So they’ve chosen not to lend at all, at least not to homeowners.

Is this an unintended consequence?  Maybe not. Maybe the prevailing sentiment is that all private lenders should be out of the residential lending business.  Maybe that wasn’t the intent, but it certainly has limited the number of private residential lenders out there.

So if you are a home buyer looking for a private lender, now you know why they are so hard to find.  And if you are a licensed private lender in Massachusetts or New Hampshire, shoot me an email.   At least I’ll have some names when I get those calls from home buyers.

Senior Loan Officer Opinion Survey on Bank Lending PracticesThe tightening in mortgage-lending policies that characterized the last 3 years appears to be slowing.  This is good news for those of us who buy, fix and sell houses.

According to the Federal Reserve’s quarterly survey of senior bank loan officers, roughly 1 in 10 lenders added mortgage qualification hurdles between April and June. It’s a huge departure from just 2 years ago when the mortgage industry was facing its first wave of challenges.

During that period, eight in 10 lenders added hurdles.

For mortgage applicants , this quarter’s Fed survey results signals that mortgage lending may have reached its limits of restriction.

Since 2007, mortgage guidelines have become increasingly restrictive. There’s extra scrutiny on assets and tax returns; employment history is given more weight; loan purpose matters.  There’s a bevy of traits that can stand between you and an approval that didn’t exist a few years ago.

That said, lots of homeowners are still getting loans.

Verifiable income, good credit scores and equity are the “magic formula” and banks want to lend to good credit risks. And the best news for those that qualify is that mortgage rates are fantastic right now.

According to Freddie Mac, mortgage rates are as low as they’ve been in history.

So, if your buyers are among the many wondering if now is the right time to buy a home ,  remember that, although mortgage guidelines likely won’t get worse, mortgage rates probably will.   So price the home properly and make it irresistible to the buyers who are out there and able to qualify.