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Monday, Sep. 22, 2008

After federal plan, lending will still be tight in Central Valley

Developers are scrambling to find lenders, car loans are harder to get, home equity lines are being frozen and cash for small-business loans is drying up. And Friday's news that the Bush administration has a plan to suck bad debt out of the loan industry isn't likely to radically change the Valley's lending landscape.

"Gone are the days when banks were standing on the street corner giving out credit like it was candy," said Greg McBride, senior financial analyst for Bankrate.com, a personal finance Web site.

Banks have less cash and are tightening lending standards, he said. Even banks not awash in tanking subprime mortgage loans are finding fewer investors waiting to buy the loans they make, which means less money to lend, McBride said.

Borrowers with poor or mediocre credit will have a harder time finding or keeping loans -- but not everyone is a loser. McBride said borrowers with good credit, sufficient income and a down payment should be able to take advantage of the lending market.

Examples of winners in the central San Joaquin Valley include some established businesses and farmers producing well-established commodities such as almonds and grapes.

The winners are few, however, and there are plenty of people dealing with the new economy.

Here's how various sectors are doing:

Home-equity lines

Homeowners are increasingly having lines of credit frozen or slashed because the values of their houses are falling. Banks worry that the borrower will default on the loan if the value tumbles too far.

Nathan Magsig, executive director of the nonprofit Coalition for Urban Renewal Excellence (CURE), has seen the effect professionally and personally.

CURE provides housing for low-income families, many of whom are finding it harder to get qualified.

Magsig also experienced fallout from the credit crisis when his home lender suddenly cut his equity line of credit by $100,000 -- even though he never used it.

"If you have a home with a sizable mortgage," he said, "you'll be getting that letter in short order."

Home loans

The days of buying a house with no money out of pocket are basically gone. Lenders are now requiring homebuyers to invest a minimum of 3% for an FHA loan and 5% for conventional financing. Sellers can pay all the closing costs on an FHA loan and the majority on a conventional loan, said Michael Gilmore of Royal Charter Mortgage in Fresno.

The U.S. Department of Agriculture, Veterans Affairs, the Public Employees Retirement System and the California Housing Finance Administration still have 100% financing programs available, but restrictions come with those, such as income limits and geography.

Car loans

Auto loans for used cars are harder than ever to get, said Auto Maxx finance manager Sami Asadourian.

Between 30% and 35% of people who find a car at the Fresno dealership near Shaw Avenue and Highway 99 qualify for a loan these days, compared with 55% to 60% in past years, he said.

"Even people with good credit -- we're having a hard time getting them qualified," he said.

Instead of the usual three references for banks to contact in case a person stops paying, many are requiring 10, he said.

In the past, Asadourian said, banks never asked for proof of income if a customer's credit score was higher than 680. Now, even customers with a FICO rating of 800 are having to prove their income, he said.

And if the person already has a car loan, banks are extremely stingy about granting a second, even if buyers prove they make enough money to pay both, he said.