Home Sellers Face Challenges From Lenders

On top of everything else real estate sellers have been hit with -- the subprime mortgage crisis, oversupply of housing, an economic recession -- lenders are starting to blacklist them. With companies scrambling to make ends meet and reduce risks after so many Americans have loans they cannot pay, lenders are imposing stringent requirements to take out mortgages.

How Lenders Are Treating Mortgages

Property values continue to decline while credit becomes stricter, so lenders are very unwilling to finance home purchases, which drives down the prices even further. Lenders are even singling out specific regions and properties, like South Floridian condominiums.

Vertice of Wachovia Corp. are not lending to certain areas due to decreasing prices. Other lenders have tightened their restrictions to the point that financing is practically impossible.

The country’s largest mortgage lender, Countrywide Financial Corp., considered doing the same thing. The nation’s largest mortgage lender closed down approving its Fast and Easy and Alt-A mortgages for high-rise condominiums everywhere, which do not require verification of income or full documentation in certain cases. They switched its policy the next day, but it shows how lenders do not want to hand out mortgages in uncertain real estate markets.

Challenges Sellers Face In “Declining Markets”

Blacklisting is not based on socioeconomic status, but it is changing lending stipulations based on geographical regions. For example, the South Florida Business Journal reported that BankUnited Financial Corp. had a “nonpermissible condominium project list” that targets nearly 200 condo developments in Florida and Las Vegas where the bank will not provide financing because of “declining market value.”

Companies also blacklist developments less than 60 percent filled, because vacancy rates means condominium fees are higher. Companies say they are taking into account possible future risks by doing so. The problem is, if mortgage credit is no longer available in popular markets like condominiums, then prices just fall even more.

The only way in which lending restrictions benefit anyone is through people looking to buy with cash. Without any other ways to negotiate, homebuyers with the capital to back up their purchase right away can bargain the price down even lower. Unfortunately, the one who suffers most in this situation until housing market conditions improve is the home seller.