Hard Money Commercial Loans Getting Harder
Amid skyrocketing demand, hard money commercial loans are becoming tougher to obtain as underwriting criteria are tightened.
/EINPresswire.com/ March 8, 2011 - Fredericksburg, VA - (http://www.smart-business-financing.com) Hard money commercial loans are not what they were just a few short years ago. The days of lenient underwriting and fast money are long gone, as many commercial mortgage brokers will readily attest. A quick survey of the roster of commercial hard money lenders supports this assertion, showing that since 2007, hundreds have shut their doors, and most of those that remain in business have substantially changed their underwriting criteria. Loans that would have once easily closed and funded are now rejected.
The reasons for the increased caution in underwriting hard money commercial loans are rooted in many of the same complex factors that brought conventional lending to its knees. Ironically, as conventional bank standards stiffened, forcing more people into hard money, hard-money lenders have now significantly tightened their standards as well.
Though unprecedented governmental intervention aimed at reversing the tide has produced statistical "green shoots" and fueled optimism, the effects of this deep and protracted financial crisis are still being felt in steadily declining property values, striking blows to the very core of commercial hard money.
According to Smart-Business-Financing.Com contributor and president of commercial finance company, AEGIS Financial Solutions, Inc., few people accurately predicted such a steep drop in values on commercial properties. Since by its very definition hard money underwriting places the greatest emphasis on the value of the collateral, it was only a matter of time before this steady trend of decreasing values was going to have an adverse impact on lending.
"The drop in prices has created turmoil in commercial real estate financing in most areas of the country," he said. "Potential buyers can't get financing. And current property owners can't refinance their maturing loans."
The inability to refinance is projected to be an ongoing problem, as over $200 billion of commercial mortgage loans are scheduled to mature through 2015. More foreclosures and strategic defaults are certain.
Traditionally, hard money is intended to be temporary, a bridge into either a property sale or refinance into a permanent loan. Because of the weak economy, many hard-money borrowers are trapped, unable to sell or qualify for permanent financing. This has tied up funding that hard money lenders would otherwise use for new projects.
"During the boom, lenders could leverage their money to increase lending capacity and use the secondary markets to sell their loans and churn their cash," Lieber said. "For the most part, that is all history."
Today, most hard money lenders rely on available cash, private investors and hedge funds. But their lending capacity remains a fraction of what it once was.
These factors are forcing hard-money lenders to re-evaluate their business models and adapt if they are to survive. These adaptations include changes to the amount they will lend, more conservative property valuations, and elimination of certain classes of property, such as land, from consideration. Many are pulling back from national or regional lending to the relative comfort of lending in their home markets.
Though still not widespread, another significant trend occurring in commercial hard money is lenders probing deeper into the credit worthiness of their customers - looking closely at credit scores and evaluating income and assets. "No-doc" and "lite-doc" programs are vanishing, making hard money commercial loans "less hard" than ever before.
These changes do not bode well for a robust recovery in commercial real estate anytime soon and will continue to challenge borrower and lender alike well into the future.
About AEGIS Financial Solutions, Inc.:
Since 1998, AEGIS Financial Solutions, Inc. has been helping people solve financial problems and get money when they need it most, using the vast resources of the non-bank cash flow industry.
Press Contact:
Mike Lieber, President
AEGIS Financial Solutions, Inc.
88 E. River Bend Road
Fredericksburg, VA 22407
mjl@aegisone.com
PH: (540) 548-2270
###
/EINPresswire.com/ March 8, 2011 - Fredericksburg, VA - (http://www.smart-business-financing.com) Hard money commercial loans are not what they were just a few short years ago. The days of lenient underwriting and fast money are long gone, as many commercial mortgage brokers will readily attest. A quick survey of the roster of commercial hard money lenders supports this assertion, showing that since 2007, hundreds have shut their doors, and most of those that remain in business have substantially changed their underwriting criteria. Loans that would have once easily closed and funded are now rejected.
The reasons for the increased caution in underwriting hard money commercial loans are rooted in many of the same complex factors that brought conventional lending to its knees. Ironically, as conventional bank standards stiffened, forcing more people into hard money, hard-money lenders have now significantly tightened their standards as well.
Though unprecedented governmental intervention aimed at reversing the tide has produced statistical "green shoots" and fueled optimism, the effects of this deep and protracted financial crisis are still being felt in steadily declining property values, striking blows to the very core of commercial hard money.
According to Smart-Business-Financing.Com contributor and president of commercial finance company, AEGIS Financial Solutions, Inc., few people accurately predicted such a steep drop in values on commercial properties. Since by its very definition hard money underwriting places the greatest emphasis on the value of the collateral, it was only a matter of time before this steady trend of decreasing values was going to have an adverse impact on lending.
"The drop in prices has created turmoil in commercial real estate financing in most areas of the country," he said. "Potential buyers can't get financing. And current property owners can't refinance their maturing loans."
The inability to refinance is projected to be an ongoing problem, as over $200 billion of commercial mortgage loans are scheduled to mature through 2015. More foreclosures and strategic defaults are certain.
Traditionally, hard money is intended to be temporary, a bridge into either a property sale or refinance into a permanent loan. Because of the weak economy, many hard-money borrowers are trapped, unable to sell or qualify for permanent financing. This has tied up funding that hard money lenders would otherwise use for new projects.
"During the boom, lenders could leverage their money to increase lending capacity and use the secondary markets to sell their loans and churn their cash," Lieber said. "For the most part, that is all history."
Today, most hard money lenders rely on available cash, private investors and hedge funds. But their lending capacity remains a fraction of what it once was.
These factors are forcing hard-money lenders to re-evaluate their business models and adapt if they are to survive. These adaptations include changes to the amount they will lend, more conservative property valuations, and elimination of certain classes of property, such as land, from consideration. Many are pulling back from national or regional lending to the relative comfort of lending in their home markets.
Though still not widespread, another significant trend occurring in commercial hard money is lenders probing deeper into the credit worthiness of their customers - looking closely at credit scores and evaluating income and assets. "No-doc" and "lite-doc" programs are vanishing, making hard money commercial loans "less hard" than ever before.
These changes do not bode well for a robust recovery in commercial real estate anytime soon and will continue to challenge borrower and lender alike well into the future.
About AEGIS Financial Solutions, Inc.:
Since 1998, AEGIS Financial Solutions, Inc. has been helping people solve financial problems and get money when they need it most, using the vast resources of the non-bank cash flow industry.
Press Contact:
Mike Lieber, President
AEGIS Financial Solutions, Inc.
88 E. River Bend Road
Fredericksburg, VA 22407
mjl@aegisone.com
PH: (540) 548-2270
###
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