As Spring/Summer 2000's sea-sick stock market proved, investments can be rocked not
only by bad news but by jittery investors who choose to jump ship even before a
leak can be plugged.
When the stock market turns bearish, what happens to the loan industry? Is it
harder to get every type of loan, including HUD loans?
According to Jeffrey A. Davis chairman of Chicago-based Cambridge Realty Capital, underwriting
for all types of loans typically becomes tighter, and every loan proposal
receives more scrutiny. He says that many investors beat a hasty retreat,
resulting in less capital being available for investment.
But, not all declining markets produce nothing but bad news. Some opportunities
may be foreclosed, but others often emerge, maintains Davis, whose company
offers both HUD and conventional loan programs.
For example, in the market sell-off that began last April, Davis says HUD
lending programs enjoyed a clear competitive edge over conventional loans. In September,1999, during a similar stock market shakeup, HUD rates dropped two full percentage points below rates for conventional lending programs available to borrowers in the senior housing and healthcare industry, but this gap has since been closed.
Davis believes the next stock market correction will probably be less
tumultuous for the capital markets. Presumably, following the latest wake-up
call, borrowers are more attuned to timing issues and current trends.
"But the prudent borrower will take nothing for granted. In the current
investment climate, it's a bad idea to delay a funding decision based solely on
the hope that the interest rate scenario might improve," Davis said.
"There's plenty of evidence to demonstrate that the capital markets are capable
of sudden, unanticipated change," he added."An unexpected credit crunch proved to be a short-lived aberration that was over almost as quickly as it began. But it served as a wake-up call for many borrowers who learned, once again, that complacency can be costly," noted Davis.
Real Times: Interest Rate Watch
Published: January 26, 1999
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