Central Valley

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.

Developer financing

Lenders are requiring that builders make higher down payments, sometimes close to 40%, compared with about half that in past years, said Darius Assemi of Granville Homes, which is a partner in Fulton Plaza, a mixed-use project in downtown Fresno consisting of apartments and commercial space.

Fulton Plaza found financing and is under way, but the developers of The Legacy Downtown a few blocks away are having trouble. The project -- apartments, an ice skating rink, offices and retail space on a parking lot next to Selland Arena -- is stalled.

"It's actually hysterical," said developer Brian Glover. "We had a bank in play in February, and that bank stopped lending in February. We had another bank in April, and that one stopped lending. You just run out of options. It's very difficult to do any kind of development."

The Legacy's developers are considering alternatives, including seeking federal funds or phasing construction, Glover said. "We won't go to the city for money," he said.

Small-business loans

Small-business owners and entrepreneurs, once the darlings of the lending industry, are also finding a tougher time securing financing.

At the Fresno office of U.S. Small Business Administration, the number of loans backed by the federal program dropped 28% from August 2007 to August 2008. And the total dollar amount of those loans declined 16% during the same period.

Ron Truly, deputy district director of Fresno's SBA office, said that in a down economy, retailers and service businesses have a more difficult time finding money to launch their ventures.

"Lenders are looking at how they used to do business and now they are looking at how they need to do business," Truly said. "And what they find acceptable is getting a little tougher."

Businesses that appear to have escaped the tightened lending standards are those that are expanding and buying property, such as a manufacturer or even a large-scale retailer. SBA-backed loans for the purchase of real estate dipped just 6%, but the total dollar amount rose by 12%.

"These are businesses that are more established and able to weather an economic storm," Truly said.

Farm loans

Tom Brown, CEO of Fresno Madera Farm Credit, doesn't mind being criticized for being too conservative during peak economic periods, especially now that nonfarm lenders nationwide are struggling with the fallout of poor loan decisions.

"As things get a little tight, it makes our portfolio look pretty good," Brown said. "We have been lucky because we have not been impacted to a high degree from the big crunch."

Although farmers are struggling with rising operating costs, including energy and water, Brown said his strategy to lending remains the same: loan aggressively during the downturn to companies with growth potential, such as almond or grape producers, and don't get overly aggressive during the upside.

"It seems to work out better that way," Brown said.

But for those growing commodities that have not performed well over the last few years, the search for bank financing is becoming tougher.

"In the tree fruit industry, we are seeing more and more growers relying on private financing from packinghouses," said Barry Bedwell, of California Grape and Tree Fruit League in Fresno. "And if the market does not hold up, we may be seeing even more pressure on the packers."