The wellness of the economy has improved during the last several months. Technically speaking the economic depression may be over; we might be growing gdp once more. But, unfortunately, the recession keeps going. A lot of banks are very concerned about further damage commercial real estate values and rising commercial mortgage delinquencies. They fear that more large percentage write downs of their CRE portfolios may be necessary damaging their statutory solvency. Banks on the side are very wary about financing.
Other financial institutions, even healthy ones, together with insurance providers are looking at their investment capital as they await the next wave of new regulations from Washington. Authorities are applying existing regulations more strictly than ever while promising even tougher lending guidelines are on the way. Loan companies will not loan seriously until they understand what the regulating situation is going to seem like. As the administration encourages lending with their words they are demoralizing it with their heavy handed steps.
For a lot of borrowers the answer has been private lending. Privately financed, known as ?hard money? commercial mortgage loans are financed by private individuals or privately owned companies. These unique lenders often secure the loans they write in their own investment portfolios rather than selling them to the secondary mortgage bond market. Private hard money lenders are not regulated by the Federal or state Government so they enjoy much more flexibility and can finance loans quicker than banks can. Multi-million dollar loans can close in less than 10 days if the deal works best for the hard money lender.
The disadvantage to private lending is that prices and points are significantly greater than bank interest rates and that a lot more collateral is needed. Private lending almost always top 10 percent with at least 3 origination points and loan-to-value ratios hardly ever go beyond 65%.
The economic crunch has resulted in many good loans to be declined by banks. Further, dropping property values cause it to be even more complicated to be eligible for a regular financing. Hard money lenders are usually able to finance deals that banks are being compelled to turn away. Private lending has become an important piece of commercial real estate finance. Borrowers prefer to get a decent, low interest rate financial loan with great agreements, but that sort of funding is not really easily available today. Private hard money lending is now popular finance and, for many struggling investors, could be the only solution.
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