-Credit markets are continuing to tighten -

[Matthew Crivelli]

The private lending world is rapidly changing, the once readily available private 30 year financing will continue to become harder & harder to obtain. Credit requirements are getting WAY more stringent.  

Say I have two borrowers who are 50/50 partners on an LLC and they want to refinance with a DSCR loan. Borrower #1 has 800 credit but borrower #2 has 650 credit. The secondary markets (the people who buy these 30Y notes after origination) are now asking the lenders to qualify the refinance using #2's 650 score instead of borrower #1's 800 score. This means instead of getting 75% LTV they would only qualify for 65% LTV. (Still, there are work arounds to this & a good lender should be able to help you get the higher LTV - at least for now)

On top of credit, short term rentals are also on the chopping block for DSCR 30Y financing as this sector will most likely see a significant slow down in the coming months.

My advice to investors - If you have a property in need of 30 year money and you won't qualify with the bank...you may want to make your move soon because this money could dry up fast. 

My question to the people of Bigger Pockets,

Do you believe the mortgage industry is over reacting, the FED's will slow inflation quickly and things go back to normal or do you think we are on the brink of some really hard economic times? Maybe somewhere in the middle? Would love to hear differing opinions on the matter!

[Erik Browning]

The mortgage industry is not overreacting. It's SOP to use the lowest mid-score if there are multiple borrowers, this is not a reaction to the higher rate economy. 

The sentiment around locking in your loan on an asset is spot on, however. Historically, rates are still relatively low and there is a good chance they will rise higher before they come back down. Once they level out, investors can always refinance into something more reminiscent of "normal times." Tightening guideline overlays will only hurt lenders; it's not in their best interest to exclude qualified buyers, and their MBS investors aim to take advantage of the higher income as a result of rising rates.

Regarding the "hard economic times," I don't believe so. We are in a correction that will cause discomfort, however Americans will persevere and protect their positions during these times. There is data that the consumer personal credit is on the rise, however. I suspect this will affect the most vulnerable of our population - as these things normally do. We are all questioning if we need to make that drive, buy that coffee, or have a 2nd vacation. Companies that cater to luxury items will suffer, consumer staples and commodities will remain strong.