Victor’s Insider Scoop on Why Many Good Properties (and Borrowers) Are On The Ropes …
August 1st, 2008 | top of page
The last thing a bank wants to see is a bunch of FDIC regulators with sharpened pencils come charging through their doors. But, with small and midsize banks losing more than $354 million in Q2 08 (see page 36), you can bet this is happening more and more. According to Albuquerque’s First Community Bank CEO “We are getting a little more conservative in the types of loans we do. We are in a capital preservation mode”. I’m thinking that “a little more conservative” is couching the real situation just a bit too conservatively. With many of the real estate loans on lenders’ books made during Phoenix’s most recent real estate boom, many fine pieces of property are encumbered with more debt than they can be sold for. And, although the borrowers may have development projects that make sense and the borrowers are still current on their payments, they have a sword of Damocles hanging over their heads: their acquisition or construction loan is coming due and no bank wants to discuss refinancing it. This situation presages that more foreclosures may be ready to snowball and further exacerbate a recovery. With the traditional lenders taking themselves out of the picture opportunities are growing for many of Phoenix’s hard-money lenders. But, with interest rates that are sometimes double those of a traditional lender and equity requirements near 50%, borrowers without deep pockets or additional sources of capital may be hard pressed to keep their projects afloat for any extended period.
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