Tuesday, July 15, 2008

Investing And Failing Banks Don't Mix Well

IndyMac Bancorp was seized by the Office Of Thrift Supervision and taken over by the FDIC on Friday. This is one of the largest bank failures in U.S. history. There are at least 300 other banks that may suffer the same fate due to liquidity concerns and mounting foreclosures. Depositors are insured up to $100,000 by the FDIC, but for those with accounts over $100,000 it's bad times.

When banks fail, heightened lending restrictions from other banks tend to follow. These restrictions can have a devastating effect on Real Estate investors looking to borrow money. Fewer lending options are in the near term future as banks tighten up their lending practices. The days of exotic mortgages are over. The same can be said for stated income and negative amortization loans. I mentioned in a prior post that cash is king because cash investors don't have to worry about banks to fund their investments. With the current sign of the times, this could not be more true.

Property values are very attractive nowadays, but getting a loan is about to get really ugly as the potential for more bank failures exist. My advice to those of you interested in getting an investment loan is to get pre-approved as quickly as possible. Underwriting terms are about to change dramatically and current loan products may not be available in the coming months.