As Kirk Johnson, manager of the Investment Management Group at CoreFirst Bank & Trust in Topeka, observed, homeowners had been in the habit of looking at their home as a source of liquidity through the use of home-equity loans and the like. Investors have now come to see the home as simply as “some place to live” and not as part of their asset allocation.
“For younger people starting out,” said Kelli Glynn, “I don’t know that owning a house is as attractive as it once was.” Interest rates may be low, but buyers need a substantial down payment and clean credit to qualify. For those with cash on the sidelines, there are opportunities, “but that can be very sticky if you are buying in a short-sell situation.”
Kristin Tyson expects to see “a couple years’ worth of surprises” in the commercial real-estate market. Holders of five-year notes may discover that their assets are worth substantially less than when they financed or purchased them. “The question is, where do they go?” said Tyson.
Credit Where It's Due
There seemed to be some consensus among the group that credit standards had grown too lax in the past decade or so. As Kristin Tyson noted, the trend is now in the other direction. “It’s government-directed,” she said, “but I think that it’s the prudent decision to make, as well.”
“Everyone got lax,” affirmed Dave Janus, “whether you’re talking about consumer credit or corporate credit.” Part of the perceived problem was that if a lender put his client thought appropriate due diligence, the client could always find someone who would not. “We migrated from good credit standards,” said Janus, “to not so good, to really poor.”
“Lenders were doing whatever they needed to do to compete and get the business,” said Tyson. “And, unfortunately, the consumers didn’t really care. They just wanted the money.”
The consumers were not particularly well-educated, either. “The individual hasn’t done a very good job at managing credit,” said Adam Bold. “Some of that is on them, but I also think there are things we in our industry could do to better educate people.”
The tightening of standards and the increase in documentation have, however, hurt the business owner, said Scott Boswell. An entrepreneur, even one with positive cash flow, finds the underwriting standards challenging. “That’s where the baby did get thrown out with the bath water,” said Boswell. He asked: “Who is going to make that loan now?”
Many borrowers have turned to the HELOC—home equity line of credit—for liquidity. As K.C. Matthews of UMB Bank noted, many banks are offering those lines at attractive rates. “It is a very viable market for banks,” he noted.