Hard Money Loan Applications Surge in First Half of February 2008

Posted on February 19th, 2008

As the mortgage market continues to tighten the availability of residential mortgage money, many former qualified investment home borrowers are turning to hard money lenders to facilitate their needs. In the first half of February of 2008, we’ve witnessed a massive resurgence of borrowers requesting this type of financing.

hard money

A hard money loan is typically defined as a loan that mortgage banks won’t do. They range from borrowers with low FICO scores all the way up to complex commercial deals invoking blanket or bridge financing. The lenders offering these funds are typically lesser known pools of funds put together by former mortgage brokers now turned hard money lenders.

With the recent tightening of institutional financing and the folding up of 200+ lending institutions, these types of hard money pools are gaining popularity with former mortgage brokers faster the any new FHA reform you may hear about.

These new hard money lenders bring on wealthy investors and pay them a sizeable return of approximately 10-12% for the use of their money. They then loan the money out and keep the origination fees that they collect from the borrower. Additionally, they typically charge their pool of investors a 1% fee for servicing all of the borrower’s monthly payments and collections.

In the past, and to some degree still today, hard money loans carry a stigma of ill repute. This comes from the high fees (points) and exorbitant interest rates that nearly all of these lenders charge. Interest rates of twelve percent are a normal starting point for these costly loans. Origination fees are also high, typically ranging from 3-8 points (3-8 percent of the total loan amount borrowed.)

Interestingly enough, for some borrowers, this type of loan is a wonderful thing. Residential investment mortgage loans have nearly dried up while the number of pennies-on-the-dollar foreclosure homes has gone through the roof. In many cases, residential home investors are now forced to utilize hard money financing to purchase homes. Traditional lenders used to allow investors to finance as many homes as they could reasonably afford. With lenders feeling the pinch from sub-prime losses, they have nearly all restricted the max number of financed properties to four. With the advent of the hard money lender comes relaxed guidelines and a more common sense approach to lending.

Hard money lenders typically loan at a maximum of 65% of the purchase price of a home or its appraised value on a refinance. For a hard money lender, this gives a tremendous cushion and a firm reassurance that a borrower will pay their monthly hard money mortgage payment. After all, if they don’t pay, the hard money lender will foreclose and own the home at a roughly 35% discount.

There are few other qualifications to a hard money loan besides having “skin in the game” (having the 35% to put down on a purchase or at least 35% remaining equity in a home when refinancing.) A few newcomers require the borrower to have a FICO score of 620+ but most old timers in the business still loan to anyone with a 65% LTV or lower.

If you are looking for a hard money loan on an investment property, a residential refinance or a commercial transaction your first stop should be to visit our friends at Las Vegas Hard Money. They provide hard money loans strictly based on LTV (Loan-to-Value Ratio.) They are the only technologically savvy source of hard money with a website that instantly gives you a lending decision. Their website automatically pulls down the property valuation and divides it by the mortgages requested, thus providing a fully-automated immediate hard money decision.

Luxury Mortgage Group assists in the placement of funds for this pool as well as consults investors with diverse yield requirements from all over the US and abroad. If you are interested in investing in hard money mortgage backed securities, continue on to our corporate website where you can read about investing in hard money.

If you have additional questions regarding hard money investing or obtaining a hard money loan contact:

Call Jason Fox / President
at (702) 444-0400 x1
Continue on to our 2 minute mortgage pre-approval form.
Or complete our full online mortgage application.

Filed under Hard Money, Las Vegas Hard Money, hard money investing, hard money lenders, skin in the game | No Comments »

Presidential Candidates Offer Opposing Views on the Ailing Housing Market

Posted on February 8th, 2008

        There is not much debate at this time about whether or not certain segments of the housing market are in fact in a crisis, but rather the real issue is how we deal with our current situation. Some advocate letting the free markets play themselves out with little government intervention. Ron Paul, the conservative Republican, is perhaps the strongest proponent of this. Ron Paul predicted the subprime mess before it happened laying blame on the Fed for causing the “marginal buyers to get off the sidelines when they may not have known what they got themselves into.” Paul does not support the increase in relaxation of guidelines in such programs such as the FHA programs and Fannie Mae guidelines. As you may be aware, President Bush has been pushing for increases in FHA and Fannie Mae loan limits as well as proposing a freeze on current ARM rates for buyers who have been making their payments on time at the introductory rate, but may have difficulties once their rates reset. His economically sound central argument places the ultimate blame on the Federal Reserve, saying that their unprecedented rate cuts to 1% was the creation of unhealthy exuberance for borrowers, thereby creating this mess we are in.
        On the democratic side, Hillary Clinton supports a freeze on interest rates for current homeowners and also a freeze on foreclosures for 90 days. While some may argue that this might inject additional liquidity into the economy by allowing these homeowners to spend more free cash, others such as those in publications like Fortune magazine have argued that Hillary’s buzzsaw plan could cause a massive increase in long-term rates for future home buyers. With Hillaries plan, bond investors, already uncertain about reinvesting in mortgage-backed securities would scatter to find other financial instruments to park their money. This would cause a huge long term hike in rates and be highly detrimental to affluent borrowers.
        Barrack Obama sees a much different root problem and solution to it. His answer is for more accountability in the real estate industry itself. Obama plans to go after the lenders, banks, loan officers and realtors who may have misled buyers as far as the programs that they were getting themselves into. He proposes increased penalties and tightening of guidelines for predatory lending, and does not necessarily believe that direct government intervention other than tax breaks for middle-class homeowners is necessary. While this is a great idea in and of itself, I do not believe that Obama has gotten to the root of the problem in his solution.
        Those who believe in free-market economics obviously are in support of letting the markets work themselves out. I would consider myself to lean more in this direction, although I do believe that some government protection of the industry must happen as there is plenty of room for fraud and manipulation of fees and buyers as the current guidelines now stand. We are seeing some of this happen already, specifically in Nevada and other states as loan officers are becoming directly responsible for making sure that stated income or non-verified income loans are reasonable and justified. This shifts the responsibility more on to the lending institutions and less on the borrowers.
        I would, however, strongly encourage fully-verified income buyers to take advantage of the continued low level of long-term interest rates and strength of the mortgage bond market. This situation may not last long as we are likely heading for a recession. Mortgage bonds as well as the entire financial industry has the chance of pushing bond prices lower and then in turn, mortgage rates higher, so your timing is critical. ?
        The other current good news is that Fannie Mae is looking at increasing conventional loan amounts to somewhere in the range of $600,000-$700,000, where the previous limit was $417,000. This means that jumbo loan limits are pushed higher and will allow the lower conventional rates to be applied up to these new higher loan limits. This will help savvy borrowers looking to finance new properties at deeply discounted interest rates. However, you must act quickly, as this situation is precarious and has the potential to evaporate quickly. Contact me if you have any questions on luxury financing or the current status of the housing market nationally or specifically in Nevada. I look forward to serving you and providing you with your best options available.