New Speculative Tool: Letters Of Credit
A new twist has shown up in the lending business. "Investors are getting a chance to purchase luxury condominiums along the Gulf of Mexico with minimal cash out of pocket, as lenders increasingly allow them to use letters of credit in lieu of cash downpayments."
"Letters of credit demonstrate the investor's commitment to make future payments,with the bank assuming the financial burden for those that do not own up to this promise..but critics believe they fuel speculative buying."
"'If these letters of credits are being given in markets that have a high share of investor purchasing, then it seems speculative, and it's something I'd pay attention to,' says Doug Duncan, chief economist for the Mortgage Bankers Association."