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Unformatted text preview: prepayment penalties cannot be imposed beyond 5 years. 7. Borrower qualifications – There is no standard way to qualify a borrower, and each lender determines its own standards. Some lenders are very strict in qualifying a borrower, while others may be more lenient. Many conventional lenders use the Fannie Mae/Freddie Mac guidelines. Types of loans – A few conventional lenders make only fixed rate loans. Other lenders offer adjustable rate loans, on which the interest rate is subject to change according to a specified index. Adjustable rate loans, for example, have been used since 1923 by the California Department of Veterans Affairs. Other types of Loans are also available, such as convertible rate, buy–down loans, and, in some cases, reverse mortgages. 2. Type of property – Lender policy determines the type and quality of property the lender is willing to accept as security for the loan. Does it lend on one– to four–unit properties only, or does it lend on larger apartment houses, and commercial and industrial property? Will the lender make a loan on a steep hillside lot? Some lenders do not, because of the slide risk. There are other property standards that a lender sets, and these standards can vary greatly from one lender to the next, as long as they are not illegally discriminatory.
Dynasty School (www.dynastySchool.com) 15-21 REAL ESTATE FINANCE
Policies and standards set by conventional lenders are not static. A conventional lender can change its property and borrower standards the same way it changes the interest rate. These changes are made to accomplish certain goals. If a lender has a surplus of money, it has to find a way to make more loans. It may lower its property or borrower standards. Or it can lower the interest rate or change some other policy that will enable it to make more loans. If the conventional lender wants to reduce loan demand, it could tighten up on its standards and increase the interest rate and loan fees, but its policies and standards cannot be discriminato...
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- Spring '10