Is Asset based lending being affected by the current mortgage market? With regard to LTV ratios, Loan to Value ratios, the industry is being affected. Currently, on any Real Estate financing, most especially refinances, but also on a leaseback and on purchases, many lenders are nervous about offering too high of a LTV due to declining values, which are still on the decline as of today.
Lenders are concerned that if they loan too much on a property, if values continue to sink, then they will take a significant loss in the event of default if the Loan is far higher than the auction, or foreclosure sales price.
As a result, they will tend to offer lower LTV’s on loans and will not stop there. They will often require significantly more documentation and put the transaction under more scrutiny as the market worsens. The potential borrower is now faced with having to come up with a larger down payment on a purchase or receiving lower proceeds on a refinance in spite significant equity in the property.
In the case of the purchase, the larger down payment requirement may make the loan prohibitive from the borrower side, even if it is approved. In the case of the refinance, the borrower may not want the lower proceeds amount. All these factors will result in fewer loans being both approved and closed.