BANKS TURNED THE TABLES ON HOME OWNERS

quote: "Success is a thought process"

Just looking at some time ago...

BANKS WERE EAGER
The process of sourcing for Financing for your New Home, under construction home or refinancing is fairly easy. Banks are falling over themselves to lend out money. Anything can be considered.

CUSTOMERS WERE BOSS
Customers would shop for the cheapest package, the best loan, etc. You find the best loan then you submit into the bank for approval.

and compare it with NOW...

BANKS ARE NOW WARY
Now banks view anything that walks as a sub-prime risk. With properties valuation dropping, many banks have tightened credit. Some banks have stop Term Loans Outright.

CUSTOMERS ARE SQUEEZED
Now, customers are increasingly not in a position to obtain the best possible packages. The old method of finding the best package and then applying for a loan does not work anymore unless you have millions of dollars and a stable income. Now it is, "which bank dare to lend you money." If you pass their Credit ACID tests, then you choose from the packages that they have and you optimise the mix and match of packages.

It is amazing how quickly the tide turns. When that happens, many people inevitably get burnt.

What is sad is, most banks are flushed with cash during the good times. Banks will try to lend money to you when you least need it. Cheap credit leads to asset price inflation, many people end up over-paying for properties.

When the tide turns, property prices start to fall, the bank's Loan to Valuation (LTV) increases. This causes the banks pain, if the fall is severe enough (i.e. >20%), that will typically wipe out the most recent Home Loans which were borrowed at 80% financing. Banks will start to tighten.

During this time, many people will need money for various reasons. And Banks, instead of lending out money to smooth out the economic decline for a soft landing, further tighten their credit, exacerbating the severity of economic slowdown.

It is a typical of a boom and bust cycle. So don't let this BOOM and BUST economic Chameleon catch you... It could be painful.