Helvetica Hard Money

New Nevada Bill AB 440 Means Near Death to Stated Income Loans

NEVADA PASSES AB 440 REQUIRING LENDERS TO VERIFY A BORROWER'S ABILITY TO REPAY A LOAN

In an effort to protect consumers from unscrupulous brokers and as a knee jerk reaction to the current subprime turmoil, Nevada passed Assembly Bill 440.  Effective October 1st, 2007, AB 440 amends NRS 598D.100, in part, to make it an unfair lending practice for a lender to: “knowingly or intentionally make a home loan, other than a reverse mortgage, to a borrower, including, without limitation, a low-document home loan, no-document home loan or stated-document home loan, without determining, using any commercially reasonable means or mechanism, that the borrower has the ability to repay the home loan.”

To read the new bill in its entirety click here: Nevada AB 440

http://www.leg.state.nv.us/74th/Bills/AB/AB440_EN.pdf

The issue with the Nevada bill is that it is unclear to what extent a licensee must investigate a borrowers stated income declarations and many licensees have expressed concern over the meaning of "commercially reasonable means or mechanisms" in the context of determing that the borrower has the ability to repay the loan.

NEVADA MORTGAGE LENDING DIVISION TRIES TO CLARIFY AMBIGUITY 

In an effort to clarify the ambiguity the Comissioner of the Mortgage Lending Division issued a statement to lenders. Among other things, the Division says that "licensees must verify the information that borrowers provide. The Division recognizes that there are some general sources, such as Salary.com and the Department of Labor, which may be utitlized to verify income in those situations where verfication of employment, pay stubs or tax returns are not utilized."  The Division also stated that, "it is also important that licensees document for examination purposes that these discussions and verifications occurred.  One suggested method fo rdoing so would be the completion of a worksheet for each home loan."  The Division provided a sample worksheet. Click here for a copy of the worksheet.

http://www.mld.nv.gov/Documents/2007-09-14-MLD-ExhibitA.pdf

Click here to Read the Commissioner's Letter in full.

http://www.mld.nv.gov/Documents/2007-09-14-MLD-LtrNo2007-2AB440.pdf

NEVADA HOUSING MARKET WILL LIKELY SUFFER FURTHER PRESSURE AS A RESULT OF FURTHER LIQUIDITY ERROSION

The letter and the worksheet did little to provide lenders with confidence to continue lending to stated income borrowers in the state.  In fact, several major lenders made statements that they will discontinue making stated income loans until the legislation is repealed including Wells Fargo and TB&W.  It does not take a Harvard economist to predict what affect this will have on the Nevada housing market, already having one of the highest foreclosure rates in the nation.  '

See also article written by NARREIA Staff

http://www.narreia.com/newsadvice/news_detail.php?blog_id=956

HELVETICA TEMPORARILY CEASES FUNDING STATED INCOME RESIDENTIAL LOANS

It appears that Nevada is putting an unreasonable burden on lenders requiring them to investigage borrower and broker fraud.  The irony is that the Lender who fails to identify the fraud, may be sued by the same perpetrator pursuant to AB 440 and prosecuted for that same fraud. Until Nevada repeals or amends the new law to allow for more predictability in its interpretation, Helvetica and its affiliates have joined those others lenders that have decided to cease making stated income residential loans to borrowers in Nevada.  Let's hope that other states do not follow suit, else stated income borrowers will be left without a source for a loan.

Offer Transitional Loans until Subprime Market Returns

Subprime Lending Temporarily Out of Business

Many of the largest lenders are now forced to limit their lending to what they can keep or what they can sell to Fanie Mae and Freddie Mac, the government sponsored mortgage investors who buy only loans that fit their relatively conservative standards.  Many brokers have found their subprime submissions even though approved, are "dead at the final yard."  Innovative mortgage brokers have found alternative ways to finance their borrowers despite the subprime fallout.  Private money lenders offer an attractive subprime alternative without all the extra paperwork. 

Private Money Lenders May Offer Transitional Loans

While subprime lenders shut their doors, many deserving borrowers are scrambling to access cash from equity in their properties.  Borrowers with substantial equity in their real estate still have sources of capital.  A private money lender such as Helvetica is less concerned with the borrower's credit than with the protective equity in their property securing its loan.  Borrowers in need of a quick refinance to ...

• consolidate debt,
• payoff liens,
• bailout a bankruptcy,
• avoid a foreclosure,
• market a listed property or
• get cash to transition through a turbulent mortgage market

... still have opportunities with a private money lender.  Typically private money lenders will loan up to 65% of the quick sale value on a property and sometimes more in afinity areas i.e., those areas with historically high demand and that are less affected by cyclical swings in the economy.

Is Your Lender a Portfolio Lender or Mortgage Banker

Portfolio Lender vs. Mortgage Banker

Portfolio lenders raise money from private investors to fund loans.  Mortgage bankers fund loans using a warehouse line to ultimately sell to institutional investors.  A host of mortgage bankers have evolved over the past couple years as institutional appetite for riskier loan products has increased.  Mortgage bankers pricing and ability to fund loans are highly influenced by Wall Street's appetite or aversion to risk.  As a result, loans may stay in a pipeline for weeks and months while a mortgage banker adjusts to radical market swings.  This puts a brokers loan submissions at risk.  In contrast, portfolio lenders are less impacted by market swings and institutional investor appetite.  As long as portfolio lenders continue to offer their investors attractive risk adjusted returns, investment capital continues to be plentiful and as a result loan submissions continue to be funded quickly.  Portfolio lenders do not have to wait for institutional lenders to purchase loan pools to clear warehouse lines for future fundings. 

Ask your hard money lender whether they are a banker or portfolio lender.  Make sure your loan submissions are not stuck in a backlog because of recent market changes.

How to Obtain Preferred Pricing from a Hard Money Lender

Creating a strong partnership with a hard money lender can offer brokers the following rewards:

• Faster loan processing times
• Volume discounts and preferred pricing
• Cooperative marketing opportunities
• Priority call returns and support
• Personalized training, education and onsite seminars
• Joint ventures, branch licensing and correspondent lending opportunities

Hard money lenders receive large volumes of loan submissions daily from brokers often looking for a last resort to place a hard to fund loan.  A large majority of these submissions are incomplete, unrealistic or "spam" loan submissions. Making a hard money lender's loan review simple can substantially reduce the workload and increase the likelihood that a broker would be entitled to personalized attention and preferred pricing. 

Here are some easy ways to obtain favorable pricing from a hard money lender:

1. Retain High Closing Ratios:  High closing ratios means less loan fallout and lower costs per closed loan.  High closing ratios gains the respect and the confidence of a hard money lender providing for smoother and more timely fundings on future loan files.
2. Avoid Habitual Loan Shopping:  Refrain from habitual loan shopping.  Loan shopping is charaterized by submitting a single loan to multiple lenders simultaneously.  Lenders do not like to commit resources to processing loan files that have a high likelihood of being funded by a competitor. 
3. Review the Appraisal to Insure Realistic Property Values:  Reviewing the appraisal and checking comps prior to a loan submission to insure property value is accurate reduces loan fallout and increases a lenders confidence and leads to priority processing for a preferred brokers loan files. 
4. Volume Submissions: The more loans that a broker closes with a single hard money lender, the more valuable each loan file submitted is.  Brokers that close more loans often are entitled to substantial discounts and preferred pricing.    
5. Submit Complete Loan Packages: Complete loan packages reduces loan push back and reduces processing time.  A complete package includes: fully completed and accurate 1003, 1008, GFE, TIL, appraisal, preliminary title, payoff demands, purchase contract (if a purchase transaction), borrower authorization and tri-merge credit report. 
6. Use Online Submission Forms: online loan submissions reduces duplicate data entry.  If a lender offers the ability to submit loans online or has an automated underwriting engine, brokers are often incentivized to use these services as they drastically reduce data entry. 
7. Use Preferred Vendors: using the preferred vendors of a hard money lender including title, escrow and appraisal services creates efficiencies and predictability in the loan process thereby reducing costs. 
8. Review and Understand the Lender Guidelines. Brokers often submit loan files without paying attention to the lender guidelines and loan products offered.  This increases loan fallout and cost per closed loan.

And finally, inviting your hard money lender to a playoff basketball game can't hurt.

Using Cross Collateral to Get More Cashout

Using more than one property to meet your borrowers cashout refinance requirements

Using cross collateral is a frequently overlooked financing strategy for borrowers in need of more cash than the equity in a single property will allow.  Many brokers are not familiar with using more than one property to acheive a borrower's refinance objectives.  This is not common because most conventional lenders do not allow using more than one property to secure an individual loan.  The reason for this is because conventional lenders securitize their loans i.e., they pledge them to a pool of loans that is sold to the public in the form of shares.  Cross collateralization is not a common practice in the world of securities.  However, hard money lenders are not restricted by the requirements of Wall Street.  Most hard money lenders porfolio their loans i.e., they hold them and service the loans until maturity.  As a result, hard money lenders can look to more flexible and creative financing strategies than a conventional lender. 

A Cross Collateral Case Study

For example, a borrower had 3 residential investment properties with combined market value of $1,200,000 and total exising mortgage liens of $500,000.  Property 1 = $300,000, Property 2 = $400,000 and Property 3 is $500,000. The borrower needs $100,000 total cash out to payoff a large IRS lien and a judgement.  Because not one of the properties has sufficient equity to satisfy the cashout request, a traditional bank or subprime lender cannot satisfy this request.

Using all of the properties as cross-collateral, the borrower can obtain one loan for $650,000 with a single note secured by a trust deed encumbering all 3 properties.  The borrower now has one payment to make on all 3 properties and the broker has provided more than the $100,000 needed to satisfy the loan request.