Construction Lending Grinding To A Halt
It seems what we have talked about in our prior blog entries about the housing market is starting to take shape. The availability of homes on the market remain slim, however it seems the one area of relief for consumers seeking to purchase a home is soon to be cut off as well. New home construction has been the point of relief for those seeking a home.
News is circulating that lenders are beginning to cut off construction lending entirely. Our newsletter subscribers heard this news first, so if you’re not a subscriber, fill out the form in the footer of our website. New construction has been the answer for many Americans in this slim housing market. Since existing homes are scarce, the market has been super competitive, many have turned to new construction as an alternative, especially for those with USDA and FHA loan pre-approvals as those offers on existing homes have been largely pushed aside for higher offers from consumers with conventional pre-approvals. My builder, Bob Anderson of Factory Direct Modulars, recently spoke about how lenders are losing confidence in the housing market on his YouTube vlog, particularly with lending for new construction.
Why Lenders Are Halting New Construction Loans
- Labor & Supply Shortages – Unless your head has been buried in the sand, it is obvious to see the shortages out there. Car lots almost empty, your favorite items out of stock at the grocery store, and the help wanted signs out everywhere. We have a massive supply and labor shortage. The same issues have affected home builders. Not only are they short on labor, they have to wait for supplies to even build the homes. This is causing delays in home completion. If you aren’t familiar with construction lending, typically there are deadlines a builder must meet, not only to get the next payment in the draw schedule, but to get the home completed. With the delays, lenders are taking massive hits financially as many of these loans are getting locked in with low interest rates while the interest rates are steadily climbing. This is causing the banks to begin to lose money on these deals.
- Mass Inflation – This is definitely no secret, everything has become more expensive. The bad thing is, homes bided and started months ago have seen those same hikes. Who do you think has to absorb the difference in cost? Certainly not the builder, and it’s unlikely the lender will refinance or make up that difference. Leaving the consumer to either come of with the cash out of pocket, or to obtain a loan for the difference. This is leaving many consumers to walk on those deals. As a result, banks are wanting to avoid that risk.
- Confidence In The Housing Market Is Waning – The reasons above are enough to shrink confidence in the direction of the housing market, let’s add also the lack of any substantial leadership from the Federal Reserve and the federal government. Leaving politics out of this, no real leadership was shown when the early warning signs were showing, and to compound the issue that same lack of leadership is happening even now as we are now entering into what appears to be another 2008 style crash (although with different circumstances). This has banks not willing to place further risk.
How will this affect the housing market as a whole?
Initially, the market of consumers may increase for existing homes. With an already flooded market and a lack of inventory, the market for existing homes will become even more competitive. However, I personally see this initial boost as short lived. If banks are losing confidence in lending for construction
of new homes, I imagine this same trend will trickle into lending for existing homes. It is my personal belief this will start gradually. At least in our local area, mortgage lending professionals have enjoyed an incredible amount of flexibility getting loans approved. Some have seen approvals of individuals with credit scores in the 500’s. I believe we will see a pretty immediate shift where that kind of flexibility will not be there. I would say initially your standard 620 mortgage score will be enforced (FICO scores 2,4,5). Then as this situation evolves, expect to see the credit thresholds increase, let’s say 650+ to qualify. Then of course debt-to-income and debt-to-credit thresholds increase as well. Lenders will eventually raise the bar where those who are hardly in debt with immaculate credit scores will be the ones who qualify. Another area I expect to be affected is in appraisals. With inflation, of course home prices have already escalated, but I am certain this will only continue. I have already heard of homes already not making appraisal, but I am expecting this to become commonplace before long.
How to weather the brewing housing market storm
For real estate professionals will need to be creative to weather the upcoming storm. Although this window is closing fast, there is still time to implement strategies to keep the pipeline of qualified buyers flowing. As the bar is raised, your pipeline will have less qualified buyers in it, however, taking action now can keep more clients in the pipeline.
Working with those who are currently unqualified, or those on the fringe now will be your key to keeping your pipeline full. It is no secret good and reputable credit repair professionals are the secret weapon to many top producers. They know the business they can’t have today, can be their business tomorrow. Sending your unqualified buyers to Credit Wellness Solutions today will have qualified buyers ready to go tomorrow. Jumping on this now will keep your pipeline full, or at least still moving, while your competition is losing qualified buyers as these lending thresholds are adjusted. By partnering with me, you are adding assurance that your business will continue to prosper, while others are looking for their next qualified lead. It cost you nothing!
How to partner with credit wellness solutions
- Visit my partner page and click “Partner With Credit Wellness Solutions”
- Register for your account (be sure to complete your profile so we can keep you updated on your client’s progress in our program)
- To send us a client, go to our Client Referral Portal, and input your client’s information. That Simple!
We Want To Earn Your Referral Business!
I know credit repair has a negative stigma about it, the actions of a few idiots have created an image on the industry the rest of us reputable and law abiding companies must overcome. I want to help your business thrive, and want your business that I am willing to do your first client’s, first month’s service (monthly plans) or their first deletion (pay per delete plan) for FREE! They still pay the initial first work, and each month or deletion beyond that. Here are a lost of benefits of working with Credit Wellness Solutions for your client’s credit needs.
- Full Array Of Services To Accelerate Your Client’s Credit Construction – We don’t just do credit repair. We offer everything from Credit Building, Credit Education, and Tradelines. We are a FULL SERVICE credit company. To see the complete listing of our services, visit our services page. The use of these tools can accelerate any credit repair program.
- The Client Is In The Driver’s Seat – Unlike other credit repair companies, our clients get the power of choice! They can choose their credit monitoring, credit repair program (monthly or pay per delete), and escrow payment service.
- The Peace Of Mind & Safety Of Escrow – All payments for our credit repair program go through escrow. Whether it’s through escrow.com or Credzu. This puts a point of safety for the client, while holding me accountable for performing my services before I get paid. This will give you and your clients peace of mind knowing their credit health investment is safe.
- We Keep You Informed – In your portal account, you will be able to see your client’s progress and ETA for completion. Also, you will have access to our forums, and our Real Estate Professionals Forum.
- You Get Our Referrals First – When clients finish our program they may need a realtor, or lender. We will, by default refer our clients to the agent or broker in our network that’s closest to them.
Final Thoughts
Big changes are coming, unfortunately sooner than later to the housing market. Planning and preparing now will help you weather that storm. We are here to help you keep your pipeline full. Feel free to contact us! We can be reached at 888-844-4686 (option 1), or partner@thecreditdisputecenter.com.
