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National Pacific Mortgage eats, drinks and sleeps loans and current news in the financial markets and the related real estate and mortgage industry. We like to jot down pertinent information and news that might affect our business and our clients.
Well, it is not news that there is a lot of turmoil in many of the United States’ real estate markets today. There is also a lot of misinformation and unknown information with regards to many of the sub-prime, Alt A and A paper, and hard money mortgage loans that were originated in the past few years. So, how is this affecting hard money lenders? If you own property in some of the states and counties that have been hardest hit it is likely that most hard money mortgage lenders will have increased requirements and may not be interested in lending on your property at all until the market settles out. Many residential markets in California, Florida, Nevada and Arizona to names a few, are on special lists that data companies are providing to lenders and are being labeled as higher-risk markets due to their pricing volatility today.
Commercial and other income producing properties are still favored to residential properties as they are easier to value and understand from an underwriting perspective.
Effective immediately underwriting guidelines will be pulled back to the 60 to 65% neighborhood for residential properties (both owner occupied and non-owner occupied) and 65% to 70% for commercial properties (both owner-user and income producing). These numbers are rough estimates and may be better or worse depending on a number of different factors including property location, property condition, borrower strength and overall market performance.
Until further notice, National Pacific Mortgage is going to be more restrictive with residential (SFR) property underwriting guidelines. Maximum LTVs for single family homes will be in the ~65% range with exceptions made on a case-by-case basis…and rare. Property values are in a state of decline in just about every market right now and has forced us to be more selective with the deals that are selected. Commercial and income producing real estate maximum LTVs are still at 75%.
tags: hard money lending, loans, mortgages, residential, sfr, underwriting
Just an update on the status of the current underwriting guidelines with regards to foreclosure bailout loans or loans where a NOD (Notice of Default) has been filed:
If there is a pay history problem and there has been an NOD filed, on residential OR commercial property, we will knock the maximum LTV we will be able to reach down to 65%. The borrower’s income will also need to be verified via tax returns and/or VOD/VOE, etc. There may also be other items that will be looked at with greater scrutiny.
tags: bailout loan, guidelines, hard money lender, nod
I just read a great, but technical, article on Bloomberg.com regarding the current state of affairs in the world of Sub-Prime lending. If you are following along the crazy ups and downs of the real estate world as of late you will find this article interesting. The bond markets have been volatile lately moving higher on fears that the Fed will get involved in monetary policy to combat inflation. We have also heard that existing home sales are much stronger than expected. But, keen investors will take note that aggressive incentives by home builders may be behind much of the sales increase as existing home sales fell by the largest margin since 1970 according to the Bloomberg article.
tags: bonds, lending, loans, real estate, sub prime
Well, the lender closings continue this week with a number of banks closing up shop or halting fundings on loans that have already been approved. One that surprised me a bit was the Loan Center of California. I thought that they were primarily an A paper lender, but news this week from some colleagues indicated that they were not funding loans that had been approved and docs had been signed. That takes a really special operation to do things like that. Bottom line if you are currently seeking financing for a new purchase or a refinance loan with a “smaller” lender, you may want to double check and make sure that everything is on the up and up before you paint yourself into a corner.
tags: finance, loans, sub prime
Ok, let’s talk about 100% financing. Many people have become accustomed to 100% LTV loans (and higher) over the past few years. Unfortunately, many banks and lenders have been very irresponsible in how they lend money and we are starting to see the ill effects of these policies today. Banks are beginning to close up shop, lenders and investors who have purchased loan packages on the secondary market are going after lenders and mortgage brokers, and even Congress is holding hearings. What many people do not understand is that hard money lenders typically are MORE conservative when underwriting a loan. Why is this? Simple, private money and hard money lenders need to make sure that the collateral is good and that in the even they have to take a property back, they are secure and can sell the property in a timely manner. Most banks use a property valuation that estimates a 6 month to 1 year market time for selling a property, a private equity lender has to sell the property in 90 days or less typically.
How does all of this relate to 100% financing? Simple, 100% financing does exist in the hard money / private money world…as long as the real market value of the property reflects the needed value. Yes, we can provide 100% hard money / private money financing provided the deal makes sense. For example, if you happend to stumble across a deal where the purchase price is close to 65 percent of the true market value, we will definetly consider financing options even at 100% of the purchase price. Usually, when you are looking for any kind of hard money purchase loan:
This is not meant as a joke. This is something that 80% of the people that call us every day are looking for and can’t seem to wrap their heads around. Lenders need to see that borrowers are willing to back up claims that they have the deal of the century. The best way to do this is to show them that you/the borrower believes it is the deal of the century by putting their own dollars into the deal as well. IF you are willing to do this put a good information package together on the deal, how much money you are looking for, how the funds will be used, and some information on the exit strategy. This will set you apart from the crowd and get the lender’s attention quickly.
tags: 100% financing, 100% ltv loans, hard money loans
We get lots of calls each day from people looking for ARV or As Repaired Value rehab loans. For the record, there are a handful of people that like to do these deals out there. However, what most people seeking these loans don’t understand is that just because they are dealing with a private money lender / hard money lender that they get money just for asking for it. Most of the time the call goes like this:
Caller: Hi, I need a hard money loan for a property I am buying from the bank.
Us: We can help you with that. Can you tell me a little more about the deal, ie: purchase price, loan needed, rehab funds needed, etc.?
Caller: Well, I am buying it from the bank and it is worth $750,000, but I am able to buy it for $500,000. So, I need a loan for $500,000 to buy the property and then another $100,000 or so to rehab it.
Us: Okay, what kind of money are you putting into the deal?
Caller: None, I need a hard money loan for the whole purchase price. But, the property is worth $750,000.
Let’s stop the call example right here. This is where most people lose contact with reality. First, just about every lender I know is going to want the borrower to have some “skin in the game.” Translation, you have to put some cash into the deal for us to be involved. Yes, I know, you believe that that property is worth $750,000 fixed up or even more than you are paying for it. Without something to keep the borrower honest and tied to the property (aka: Cash into the deal), lenders will walk from the deal. Using a private investor or hard money lender to obtain funds doesn’t mean that you simply ask for the money, tell the lender that you are getting a smoking deal, and then they cut you a check. There is still work involved, due dilligence that needs to take place and parameters to follow. With that said,ARV loans are readily available.
info@nationalpacific.net
National Pacific Mortgage 2970 E Mckinley Fresno, CA 93703
(800) 275-6133 Fax (559)272-2297 info@nationalpacific.net
