Friday, February 29, 2008

Homebuyers and Sellers Blacklisted By Lenders

(eFinance) As home prices fall across the nation, lenders are becoming more unwilling to write loans for home purchases in some geographical regions. The result is that financing is almost unattainable in certain areas.

Some of the nation's largest lenders have found an old, but useful way to protect their capital-impaired behinds: blacklists.

BankUnited, Wachovia and Washington Mutual are among the lenders who are shying away from writing loans in areas with declining home values. And they're considering more than just location. Some housing types or projects are also being put on the no-no list--namely condominiums.

The lists aren't widely circulated and usually go under another name. 'We don't call it blacklisting,' a banking official told CNN Money. 'We just don't write the loan.'

Although some banks don't call it blacklisting, there are actual blacklists that contain non-permissible housing projects and geographical areas. To see an example, check out the BankUnited list of non-permissible condominium projects in Miami and Las Vegas.

The practice isn't abnormal, particularly in a housing downturn. The lenders who aren't blacklisting entire areas have pulled back on the amount of money they are willing to loan. For example, CitiMortgage and JPMorgan Chase both reduce the maximum amount they will loan in counties and states that are known to have declining home values. Reductions are usually between five and ten percent.

The Effect of Blacklisting

While it's good that the banks are doing what they can to protect themselves now, they are most certainly putting some people in a precarious position in the process. Anybody who owns a home--and especially a condo--will find it more difficult to sell in areas where credit has dried up.

The end result will be falling home prices. This is not necessarily a bad thing for regions with inflated home values. Prices are bound to decline anyway. The faster they fall, the faster things can get back to normal.

However, it will be interesting to see what kind of domino effect this might create. The banks that financed the now-sweating condo developers and current condo owners in Florida, Vegas and other shaky areas may end up eating the money loaned before the blacklisting began.

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