As giant lending companies continue to regroup after subsuming other companies, meeting new government regulations and simply working to unload some of the toxic loans still on the books, smaller, local lenders are stepping up to fill the void in both the residential and commercial markets.
This noxious combination experienced by the larger companies virtually froze their lending; they feared that they might worsen their own situations as well as inadvertently take on further debt that would not be repaid. This situation contributed to the burst of the housing market bubble and then exacerbated the issue as potential buyers couldn’t purchase homes because they could not secure mortgages.
Now, however, thanks to some government regulations that allow smaller banks more flexibility, as well as their savvy in filling the lending space in the current real estate market, smaller lenders are offering more mortgages for potential residential and commercial property purchasers. As a result, according to recent numbers, housing market woes are beginning to ease.
According to the Massachusetts Association of Realtors, February 2012 home sales again increased compared with a year ago – by 26.8 percent. This marks the eighth straight month of year-over-year increases.
Nationally, according to the U.S. Census Bureau and the Department of Housing and Urban Development, sales of new single-family houses in February 2012 were at a seasonally adjusted annual rate of 313,000. This number also represents an increase of 11.4 percent from the same time period a year ago.
One of the toughest challenges borrowers face in this economy is the ever-changing lending requirements and guidelines. For example, guidelines that may have allowed a borrower to qualify just six months ago may no longer apply.
New Requirements
One of these recent changes includes the requirement within a mortgage loan application that the lender provide the borrower with the new "Good Faith Estimate" (GFE).
This estimate is only good for 10 days and cannot be changed by the lender unless there are "changed circumstances." Further changes include up-front disclosure of the yield spread premium by mortgage brokers, tolerance limitations that prohibit any variation to some fees on the GFE while allowing some limited variations to other fees on the GFE that the borrower is allowed to shop for, a new HUD-1 Settlement Statement that now mirrors the GFE to make it easier for borrowers to verify the fees they were quoted and the actual amounts charged and disclosure of average charges by the lender for certain services that are required as part of the loan process. Even for people who have borrowed in the past, these new requirements seem foreign.
Another obstacle to be overcome is the lack of certainty when buying a foreclosed property. The Massachusetts Supreme Judicial Court’s decision in Bevilacqua v. Rodriguez reaffirmed the SJC’s holding in U.S. Bank v. Ibanez that foreclosing lenders must be the record holder of the mortgage prior to the time of the first foreclosure publication. This leaves those buyers who purchased at the foreclosure sale in limbo as the foreclosing lender must re-foreclose in order to cure the title. As a result, buyers must beware when purchasing property at foreclosure or subsequent to a foreclosure.
Additionally, Fannie Mae now requires that all debts and potential debts be reâ€verified at the time of closing. If any new debt is acquired on any existing credit accounts and/or if any debt is incurred through new credit accounts, the loan will be subject to re-qualification. If it is determined that the loan does not meet current qualifying guidelines, the loan closing could be delayed or terminated. This could result in the loss of the rate lock, the earnest money deposit, and other costs associated with your loan.
Borrowers on the commercial side are also experiencing the same portfolio scrutiny that was placed upon residential lenders. This is requiring some commercial lenders to rid themselves of some of their borrowers in order to bring their portfolios in compliance with the auditors.
Still, with smaller, local lenders offering lending relief, the housing market should continue its upward trend.
Scott J. Clifford is a partner at Epstein, Lipsey & Clifford in Hanover.
