Changing guidelines for residential lending
The recent changes in how lenders underwrite loans became very obvious to me over the past few days. We were looking at an SFR to use as income property, but trying to use 10% as a down payment rather than the historical “norm” of 25-30%, we also wanted to go with stated income rather than full documentation. Surprise, surprise, the loans available half a year ago to anyone with a pulse aren’t currently available. I have one broker pushing a 90% loan that needs to be a full doc through Chase, another broker wants to do a 75/15/10 using stated income.
So why not take the 75/15/10 ? I was sent a preliminary HUD-1 that showed a roughly 2% Yield Spread Premium on top of the quoted 1% origination fee. For those not in the lending business, a YSP is an amount paid from the lender to the originating broker for delivering a loan with a higher interest rate than the best available rates.
In other words, I was being charged 3% for a loan that really wasn’t too complicated. We have the credit history, funds in the bank, income to carry any potential problems, what’s so difficult about the loan decision?
If anyone believes the issues created by the subprime lending meltdown aren’t bleeding into conventional lending, I’ve got news for them, the bleed-over is real, and I think it’s going to get a lot more significant over the next year or so. At a guess, I think we might be looking at the rebirth of the creative real estate financing techniques.