Lending Strategies

A New Era of Banking

I guess my perceptions about banks may have been molded, in part, by the classic 1946 film: “It’s a Wonderful Life” with Jimmy Stewart.  Here we saw a sincere man driven by a true concern for his fellow man seeking a solution through honest business practice under the basic principles of teamwork and trust.  Today, though, kids grow up with an entirely different view of banking.  They see extremely large, cold, complex and insensitive Wall Street-driven institutions that make business decisions with little regard for their customers.

There was a time when a community bank would care for the money of its depositors and wisely lend to local businesses and families wishing to buy a local home for their family.  Over the years this very simple concept has become so large and complicated that the individual small business or homeowner has been squeezed into a very uncomfortable position.

Since the new millennium, most large banks chose to hop on the housing “bubble” and financed homes for families they knew couldn’t afford them.  The resultant U.S. foreclosure crisis is evidence of a policy gone wrong.  Nonetheless, losses must be sustained as families leave their homes either by choice or necessity.

How are the banks dealing with this widespread problem?  They promptly accepted federal aid and yet, still get a failing grade on modifying the mortgages for most of the families who needed it.  They have also tightened up new lending criteria so that new homeowners, businesses and landlords must look elsewhere for funding their transactions.

And this is just what is happening.  A new trend is sweeping the nation:  A move away from traditional banks and towards private lenders.  With private lenders the terms are considerably different than banks…often much higher interest and points.  Nevertheless, with 20-year low purchase prices, one needs the ability to act quickly without a lot of bank “red tape.”

This is especially crucial if you make your living with a real estate home business.  Whether you buy foreclosures, short sales or other distressed investment properties, the real “deals” won’t wait for the bank to get around to your file.  Most real estate investment experts have shifted their paradigm of how they finance their deals.  Thank goodness for competition!

It’s been said that “necessity is the mother of invention.”  Banking will never be quite the same again, ever.  Opportunities, however, continue to arise and one needs to be able to take advantage of these in a reasonably short period of time.  I will talk more about private money in another article soon.

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