Some smaller regional banks that have millions in builder/development loans out have come up with a unique strategy to avoid taking back half developed dirt, partially done condo conversions, and plats that just aren't moving.  Check out an example of one of the programs being offered to buyers:

5/1 ARM, 10 year interest only, 5.5%.  ZERO down, NO MI, closing costs of 1.5% (prepaids and loan fees).  Formerly called "Loan only available to God."

Essentially what they are doing is trading builder loans that they aren't getting paid on for residential mortgages that they will at least get partially paid on.  They portfolio the loans until the market rebounds (hopefully). 

The alternative for the bank is to take the properties (in various states of completion) back onto their books en mass and this will totally screw up their capitalization requirements, and write downs will explode.

For me, a lender who is competing against them, this sucks.  However, in view of the big picture, this is a good thing for builders, banks and potentially for buyers as long as they don't overpay for the home. 

What bank gimmicks / strategies have you been seeing in your area?

 
Posted by Richard Sweum on 08/21/2008 10:44 AM   Comments (7)  
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Post is included in group: All About Mortgages/Mortgage Networking
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7 Comments on Regional Bank Survival Strategy..."Mortgage Formerly Available Only To God."

AUG
21
2008
338,533 Points 3 Featured Posts

Actually it may help you because it won't cause more bank failures and more property being liquidated that the holder of the note has a first shot at financing for the next purchase.
11:15am • #1
1 Featured Post Outside Blog

Heath, I have a friend that is a builder finance guy and he shared with me 2 months ago that over 60% of the builder/developer paper that they have outstanding are in the "non-performing" category.  His challenge is that they don't have the ability to portfolio the residential mortgages.  Unless there is a quick turnaround, they are dundee.
11:43am • #2

Totally unprofitable, but better than absolutely ZERO!  I guess you need to look elsewhere for now.
1:13pm • #3
1 Featured Post Outside Blog

Randall, the biggest benefit for banks in doing this is that they get to remove garbage from their "non-performing" loan bucket and avoid shareholder abandonment and "depository stress".  I'm not too worried, most folks are terrified of ARMS at this point so we are still able to sell the benefit of a fixed rate mortgage.
2:36pm • #4
AUG
25
2008
842,602 Points 85 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

This is insane Rich.  Heard that you had a great mastermind meeting with Rich Brennan.  I couldn't make the call.  I'll be on the next one though.
9:38am • #5
368,646 Points 6 Featured Posts

Rich: The problem for banks is that the FDIC is scrutinizing their every move due to their bad loan portfolio. One of my clients told me about how most banks (he's on the board of one and started another), including small ones, are afraid of doing anything because their loan losses are so extreme. I think you've run into an isolated incident. Most of the smaller banks are on the brink right now. 
10:13pm • #6
AUG
30
2008
207,923 Points 2 Featured Posts Outside Blog

i hear only god can get 100 percent financing loans , or at least the son of god - hope business is good for you
1:04am • #7

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Richard Sweum

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