Before Sub-Prime lending was even a twinkle in the bank's president's eye the business was pretty much black and white, you either qualified or you had to find a Hard Money Lender. I listened in amazement when a borrower came into my office in the late ‘80's to tell me that an institutional lender agreed to fund what I considered a hard money loan scenario, and it actually closed. As this continually played out time after time all I could think was, these guys are getting into the hard money business but lending with an institutional mentality, the higher LTV's are what bothered me the most. Fast forward 20 years and here we are pretty much back to black and white lending again and I'm still in hard money lending but with some much needed changes.
Since the conventional mortgage lending world has contracted to a point of almost non-existence, hard money lenders are filling in the gap. Of course everyone has to expect higher rates, higher fees and shorter terms, but as I have always said, "Cheap money is no good if you can't get it." If borrowers are unable to qualify for loans to continue buying investment property the fall-back lenders are going to be the hard money lenders. These are not banks or large institutions nor are they charity groups that lend without guidelines. What many are finding is hard money lenders are like any other lender and have been forced to change their philosophy or become another statistic in their failure to protect their investors. What was "Hard Money" is now becoming the "new" Hard Money; unconventional lending with brains.
It's not that hard money lenders weren't thinking but their guidelines were almost devoid of any underwriting other than considering the property's equity. Keep in mind every lender is different but you may start to notice a trade-off to capture the business no longer funded by the banks. Expect hard money lending to continue to be primarily based on equity but many will insist on increased borrower qualifications too. The borrower needs to do more than "fog the mirror". To ignore credit and income is partially what got us here and even the biggest bankers didn't get it.
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