I have been seeing more and more evidence in the last several months of banks and their increasing unwillingness to lend or being downright slow when they will lend.

We own a small rent property with a loan of $110,000 that the current bank no longer wants on their books. Well, they would keep it, except they’d charge me a pretty penny to renew. My call to my other lender with most of my other rentals was a quick no. As in, no way, no how. It wasn’t us, they said, we’re just not doing any real estate loans. Wow. For a currently rented property in good shape, with a loan-to-value of 75%, no loan?

Another blogger in the real estate world has a similar experience when trying to close deals with willing sellers and willing buyers.

However, recently closings are going beyond the contracted date due to delays in funding. The mortgage companies are taking so long to approve jumbo loans that closing dates are being moved back 7 to 14 days. Sellers have their things on a moving van and the utilities off at their home waiting for the underwriters to give approval. They can’t close on the next house they are buying because they don’t have the current one completed. They are likely incurring additional costs for carrying the current home and delaying purchasing the next home. And no amount of begging, bribing or threatening will speed up the buyer’s lender. Meanwhile, the buyer can’t take possession of the property and also can’t do anything to speed up the lender. via Lydia Player at North Dallas Homes: Closing delays slow home sales

So what in the world is going on? Well, it seems pretty clear to me. Why would banks lend in an environment when 1) they are uncertain of asset values, 2) they are facing increasing bankruptcies on prime loans, and 3) when they are prevented from enforcing their rights to foreclose?

You’ve got the administration on one hand telling the banks to lend , but the federal regulators are telling them to reduce their exposure to real estate. It’s all ass backwards! Indeed, take a look at this article from the Wall Street Journal on Feb 24 Lending Falls at Epic Pace Money quote

U.S. banks posted last year their sharpest decline in lending since 1942, suggesting that the industry’s continued slide is making it harder for the economy to recover.

1942??? Are you kidding me?

Well this certainly doesn’t help. Here’s another Wall Street Journal article from Feb 26 When It’s OK to Walk Away From Your Home. Money quote:

Millions of Americans are now deeply underwater on their mortgage. If you’re among them, you need to stop living in a dream world and give serious thought to walking away from the debt. No, you shouldn’t feel bad about it, and you shouldn’t feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family’s finances first.

Great, now one of the most conservative newspapers in the country is telling people to just “walk away!”

And then, the cherry on the sundae is this Obama May Prohibit Home-Loan Foreclosures Without HAMP Review HAMP stands for Home Affordable Modification Program. It’s a program with a noble goal of helping consumers who owe more than 25% more than their homes are worth to refinance with lower rates. Problem is

It was originally projected to help 4 million to 5 million homeowners with loans owned or guaranteed by Fannie Mae and Freddie Mac. So far, it has helped around 220,000, according to the Treasury Department.

Since the program clearly isn’t working, the administration is considering BANNING all foreclosures unless they have been screened and rejected by HAMP! Are you kidding me?? For now, all the government is doing is extending the program through June 30, 2011, but this whole notion of banning foreclosures has got to give the bankers fits.

So, let’s recap.

So, what we have are a growing number of Americans probably living for free in homes they could never afford, and the repercussions lie with the lender in today’s populist backdrop, not the borrower.

One really has to wonder what the implications of all this will be on mortgage activity going forward. What bank will ever want to lend again without the ability for recourse?