I guess my perceptions about banks may have been molded, in part, by
the classic 1946 film: “It’s a Wonderful Life” with Jimmy Stewart. Here
we saw a sincere man driven by a true concern for his fellow man
seeking a solution through honest business practice under the basic
principles of teamwork and trust. Today, though, kids grow up with an
entirely different view of banking. They see extremely large, cold,
complex and insensitive Wall Street-driven institutions that make
business decisions with little regard for their customers.
There was a time when a community bank would care for the money of
its depositors and wisely lend to local businesses and families wishing
to buy a local home for their family. Over the years this very simple
concept has become so large and complicated that the individual small
business or homeowner has been squeezed into a very uncomfortable
position.
Since the new millennium, most large banks chose to hop on the
housing “bubble” and financed homes for families they knew couldn’t
afford them. The resultant U.S. foreclosure crisis is evidence of a
policy gone wrong. Nonetheless, losses must be sustained as families
leave their homes either by choice or necessity.
How are the banks dealing with this widespread problem? They
promptly accepted federal aid and yet, still get a failing grade on
modifying the mortgages for most of the families who needed it. They
have also tightened up new lending criteria so that new homeowners,
businesses and landlords must look elsewhere for funding their
transactions.
And this is just what is happening. A new trend is sweeping the
nation: A move away from traditional banks and towards private
lenders. With private lenders the terms are considerably different than
banks…often much higher interest and points. Nevertheless, with
20-year low purchase prices, one needs the ability to act quickly
without a lot of bank “red tape.”
This is especially crucial if you make your living with a real estate
home business. Whether you buy foreclosures, short sales or other
distressed investment properties, the real “deals” won’t wait for the
bank to get around to your file. Most real estate investment experts
have shifted their paradigm of how they finance their deals. Thank
goodness for competition!
It’s been said that “necessity is the mother of invention.” Banking
will never be quite the same again, ever. Opportunities, however,
continue to arise and one needs to be able to take advantage of these in
a reasonably short period of time. I will talk more about private
money in another article soon.