COMMENT OF THE DAY: COOL DEVELOPMENTS NEED WACKY BUCKS “There’s plenty of eccentric millionaire money around. I guess they are just more private that they used to be? (My husband’s boss keeps bars of silver in his basement, for example.) Or, they prefer to spend their money on credit default swaps than cooky real estate schemes. C’mon rich people! Do something interesting.” [anon, commenting on Comment of the Day: A Different Kind of Money]
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It ain’t the 70’s anymore. It isn’t even the 2000’s. No amount of song and dance will permit a billionaire to finance a monument unto himself for no money down on a non-recourse loan.
Lest we forget that back in the day cookie millionaires were liked and admired, but these days if you show off too much, someone surely will try to “redistribute” your wealth. Therefore “blend in and hide cash where peasants with pitchforks can’t get it” is the name of the game”
It takes more than being a ‘rich guy’ to get something built. Even if you have a few million, that’s not going to get anything of size off the ground. You still need leverage via a loan. And those are not happening. Or let’s say you have enough and are crazy enough to self finance. It gets built. Then what? That person is tapped.
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There is a nice property we are buying (single family) and we have to pay all cash for it. We couldn’t get a lender to even loan HALF. And this is in a good zip, no issues, payment would have been almost nothing, etc.
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As much as over lending (to anyone) was the cause of the bubble and its nasty pop, under lending (to no one) is having its own damaging effect.
The scary thing is…lending and property values are STILL propped up by shoddy public policy. It shouldn’t be even as easy as it is to obtain money for the purchase of real estate.
TheNiche: You’re right in that loans are done based on a conforming set of guidlines that allow them to be sold off, vs. a look at the two most important facts:
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* Can this person pay the loan? (Where a buyers income comes into play)
* What happens if they stop paying? (Where the property value and equity in come into play)
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The guildlines pretend to be concerned with those two items, but they are not.
And the governments guarantee of loans causes rates to be way lower than they otherwise would be (which is why there is such a MONSTER jump in *REAL* rates once you leave conforming land).
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And this is where I put on my tinfoil hat: The goverment has a huge interest in setting the guildlines (stick) in exchange for providing the guarantee (carrot). By all but regulating who gets a loan and how, they can force people to report income that might otherwise be illegally hidden. Or on the other end; force business owners to take less deductions than they’d be otherwise LEGALLY able to in order to prop up their income solely to satisfy a guildline — not a person. I’ve actually had a lender tell me to take less legal writeoffs to boost my taxable income to get a loan. I replied that if he were actually MAKING the decision on who gets a loan rather than following a guildline he’d see how stupid that was as paying more taxes than I legally need to would put me in a worse financial position as a borrower. That conversation helped make me realize why things are the way they are.