Market changes have borrowers ready to come off sidelines
But can local lenders put them in the game?
Premium content from Jacksonville Business Journal – by CHRISTIAN CONTE , STAFF WRITER
Date: Friday, August 12, 2011
Michael Cavendish, a partner at Gunster, Yoakley & Stewart PA, said there is a new class of borrowers who want to get back into the market and banks will have to be creative in marketing to them.
If BBVA Compass can’t lend to a potential borrower, Business Development Officer Jami Bucy said the bank tries to offer guidance so the client can improve their financial health.
The recession has ushered in many changes to the financial services industry, not the least of which are changes in the caliber of prospective borrowers.
Because such a large number of borrowers have had their credit damaged by financial issues relating to the economy, bankers are now in the position of having to rethink whom they will and will not lend money to.
Prospective borrowers with foreclosures, short sales, bankruptcies and other blemishes on their credit are starting to trickle back into lending offices, but bankers say they expect that trickle to strengthen into a steady flow as the economy continues to improve over the next 12 to 24 months.
“Within the next year and a half we expect this to become a more serious issue, but first the market has to start bottoming out and prices have to start rising,” said John Hirabayashi, president and CEO of Community First Credit Union of FloridaCommunity First Credit Union of Florida Latest from The Business Journals Spotlight: Blooming where she’s plantedFor Hirabayashi, focus is on people: clients and employeesEconomic Update: Bankers see encouraging signs Follow this company , which is based in Jacksonville. “You can take on more credit risk in a good economy. In today’s economy when there is still risk, the timing isn’t good.”
Different financial institutions plan to address the issue in different ways.
Some, such as Fifth Third Bancorp (Nasdaq: FITB), have a host of products and services to help borrowers with bad credit get back on track. Others, such as BBVA Compass, say they may not be able to offer loans to some borrowers, but will offer guidance.
One thing most financial institutions have in common: They say they will not lower their lending standards for borrowers.
“We have a new class of borrowers who want to get back into the market,” said Michael Cavendish, a partner at Gunster, Yoakley & Stewart PA in Jacksonville, where he specializes in banking law. “Banks will have to be creative in marketing to them.”
Fifth Third offers a host of outreach programs, such as an e-bus that offers credit repair and credit counseling to help individuals work toward getting a mortgage, and banking products to help improve individual credit scores, such as secured Visa credit cards and identity theft alerts.
Nate Herring, the Jacksonville city president of Fifth Third, said one of the biggest hurdles for bankers in dealing with prospective borrowers with bad credit is the borrower’s perception.
“People have this view that banks just aren’t approachable,” Herring said. “We’re ready to start with you wherever you are and wherever you want to go.”
The type of loan that a prospective borrower is applying for may pose different challenges when deciding whether to lend. Hirabayashi said his institution has to follow Fannie Mae (OTCBB: FNMA) and Freddie Mac (OTCBB: FMCC) guidelines for residential mortgages in order to sell them to those organizations on the secondary market.
Although the banking industry is heavily regulated, Cavendish said, banks have the discretion to decide for themselves whether to lend to individuals or businesses based on their credit history. Credit ratings agencies tend to keep information such as foreclosures and bankruptcies on credit reports for seven to 10 years, but that does not necessarily mean that a bank or credit union will not lend to that individual or business for seven to 10 years.
Bank regulators will continue to closely monitor banks, however, Cavendish said, and will take special note if a bank has an abundance of particularly troublesome loans on its balance sheet.
Jami Bucy, a business development officer in the Jacksonville region for BBVA Compass, said that bank reviews a myriad of factors that make up a business’s financial strength when deciding whether to lend. Those factors include profitability, liquidity and how it manages its credit.
“Every business and every business owner is different,” Bucy said. “We look at it on a case-by-case basis.”
For prospective borrowers to whom BBVA Compass determines it cannot lend, Bucy said the bank tries to offer guidance on how individuals or businesses can improve their financial health, such as finding a good financial adviser, certified public accountant or attorney, limiting access to credit for a period of time while they pay down debt and updating or creating a business plan. The bank also suggests that business owners do their homework before applying for a loan to research the criteria and what they need to do to reach those qualifications.
