Latest Developments in Construction Lending

Construction Loans, just like purchase money and refinance loans are now almost constantly in the news. Latest developments include Countywide’s announcement today that they are pulling out of the construction loan market.

In the recent past companies like National City and Mid County closed their doors on construction loans and some others annunciated very restrictive guidelines an example of which is SunTrust’s announcement yesterday that they will limit their construction loans to a maximum of 70% LTV for all their construction loan programs including fully documented loans.

Unlike purchase money and refinance mortgage loans that are based on present value, construction loans are based on future value and since the so much uncertainty surrounds the future values of real estate, investors prefer to stay away from what only a year ago they considered a very lucrative market.

In general there are very few institutions that still do construction loans, which is proving to be very challenging for the average borrower. We are constantly receiving calls from prospective borrowers who would like to build a new home or substantially remodel their existing home, but almost every one of them is not qualified under the present guidelines.

What's Nwe in Construction Loans?

For a while back there, it seemed like there was nothing to report on in the world of construction loans, and then all of a sudden hell broke loose!

Construction loan lenders just like all mortgage lenders found themselves in a world of hurt, caused mostly by their own relaxed underwriting guidelines and manipulation of guidelines that encouraged fraud.

Encouraged fraud? You ask, perplexed and confused… Yes indeed, now every CEO of every major lender, who got onto the band wagon and concentrated on closing numbers only and kept manipulating guidelines to facilitate fraud, is looking for an excuse to cover his/her tracks. Everyone is to blame but themselves.

Things have settled somewhat now and I’ll start posting on a more regular basis from now to keep construction loan borrowers informed of the changes that are here and those that are on their way.

Meanwhile, I should mention that our main website, www.constructionloancenter.com is undergoing major changes that will enhance its presence and functionality. I’ll keep you posted.