by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Hard money is not stupid money. Pragmatic underwriting guidelines are followed so as to insure the principle that the private mortgage really is a temporary loan, designed to solve rather than to perpetuate the underlying problem. I attempted to define this niche in one of my first posts on Bloodhound and followed it up with an hour-long conference call with two private mortgage investors.
Private mortgage loans are not asset-based lending. There must be a demonstrative ability to repay the loan. If the borrower opts to “state” the income, the trust deed broker has an obligation to the investor (and the borrower) to perform due diligence that would suggest that the borrower has that ability. We sometimes eschew traditional underwriting guidelines to demonstrate that ability to repay. Often, we accept a statement of future earnings from the borrower (useful for entrepreneurs). We will review the assets in a retirement plan as reserves to draw upon should that statement of future earnings not materialize.
Private mortgage loans are not a license to jack up the fees. I often turn away brokered business because of originator greed. Lenders charge points to enhance their yield. A common practice in our industry is for the originating broker to increase his/her brokerage fee to equal or better the lender-charged points. The result is an unrealistic fee financed by the lender and subsequent decline. If brokers are charging a borrower 1-2 points for a subprime loan, and the loan turns into a private mortgage loan, brokers should not automatically raise their fees because the borrower is “stuck”.
Values are carefully scrutinized. Appraisals can be manipulated to reflect an approximate opinion of value. It may very well pass the test of a FNMA/FHLMC underwriter but not the careful eye of the private mortgage lender. Originating brokers would do well to check the local MLS for model matches. If you have an appraisal for $650,000 and two model matches are being offered for sale at $599,000 and $580,000, with an average of 45 days on the Read more
(Sorry Kris and Steve, we couldn’t get one that shows your phone number, but you can see “erg” and the castle.)
Today’s the day, the first day of the second year of BloodhoundBlog. We’re at 1,473 posts (which tells you that Jeff Brown killed 127 posts in draft mode), with 9,144 comments. Right at this moment we have a Technorati authority of 526, with 4,443 links from other weblogs. Yahoo is showing us with 36,243 total inbound links. We have served over 150 gigabytes of content this month, with 30 hours left in the month.