50% of loan modifications fail within 3 mos.

Foreclosure Mitigation Makes Little Headway Wall Street Journal (12/23/08) P. A4
Holzer, JessicaA joint Office of the Comptroller of the Currency and Office of Thrift Supervision report, based on data from nine national banks and five thrifts, shows a 2.6-percent drop in newly initiated foreclosures to 281,298 in the third quarter from the prior three-month period. Beefed up modification efforts by servicers and foreclosure moratoriums in several states are responsible for the slight decline. However, the report also shows an 11-percent jump in loans in the foreclosure process to 617,642 and an 8-percent gain in completed foreclosures to 127,738 over the same period. Additionally, it reveals deteriorating credit quality among all types of mortgages and a more than 50-percent redefault rate for modifications undertaken in the first quarter.

Surviving A Rough Economy

Be understanding to your perceived enemies.
Be loyal to your friends.
Be strong enough to face the world each day.
Be weak enough to know you cannot do everything alone.
Be generous to those who need your help.

Be frugal with that you need yourself.
Be wise enough to know that you do not know everything.
Be foolish enough to believe in miracles.
Be willing to share your joys.
Be willing to share the sorrows of others.

Be a leader when you see a path others have missed.
Be a follower when you are shrouded by the mists of uncertainty.
Be first to congratulate an opponent who succeeds.
Be last to criticize a colleague who fails.
Be sure where your next step will fall, so that you will not tumble.

Be sure of your final destination, in case you are going the wrong way.
Be loving to those who love you..
Be loving to those who do not love you; they may change.
Above all, Be yourself.
Just Be Yourself.

Sent via BlackBerry by AT&T

Time To Start Budgeting for 2009

Many Companies Report Flat or Deteriorating Working Capital

Only 37 percent of companies had a working capital improvement program in place during the past five years.Two-thirds (67 percent) of senior financial executives said their company's working capital is flat or has deteriorated as compared to three years ago, with little relief in sight, according to a global survey by KPMG LLP, the audit, tax and advisory firm . According to the survey, which polled more than 550 companies across the United States and Europe, 83 percent of executives said managing working capital was the highest or a high priority at their companies, yet only 37 percent of those surveyed had a working capital improvement program in place during the past five years. And of those respondents who did not have a working capital improvement program, 70 percent predict their working capital will stay the same or decrease. In addition to deficient working capital management programs, an overwhelming number of companies fail to produce reliable cash forecasts. Although almost all respondents (95 percent) report forecasting their cash flows, only 14 percent of respondents report achieving accurate forecasts in the last 12 months."In turbulent times, when access to credit is curtailed, effective cash and working capital management practices can be essential to stay competitive or simply afloat," said Brad Hillier, a managing director in KPMG LLP's Advisory Services practice. "There's no doubt that companies have heightened cash management concerns today as compared to just a few months ago. Companies that have a disciplined approach to cash and working capital management are in a better position to take advantage of opportunities available in a tumultuous market–such as making acquisitions or strategic investments."Addressing forecasting, Hillier noted that accurate forecasting is critical to effectively managing a business in a difficult economy. "Not only is forecasting a necessary tool for improving working capital performance, it is especially critical in times like these for making strategic business decisions," Hillier said. "Many companies do not gather the right data to produce accurate forecasts, nor do they have the right people involved in the process. In addition to improving the forecasting and reporting processes, executives should consider using other best practices, such as targeting metrics and establishing dashboards and controls that offer better visibility into cash performance."Despite the fact that studies have shown that the best performing businesses tend to be those that link working capital performance to managerial incentives, the KPMG survey found that almost a quarter of respondents (24 percent) had not correlated working capital with compensation.

Most Americans Don’t Understand Basic Economics

And the regulators are blaming lenders for the credit crisis. Some of the blame needs to be placed on the borrowers. By placing all of the blame on the lenders and allowing all of these frivolous lawsuits will only restrict the flow of capital.



New survey shows the majority of consumers can't correctly answer questions about borrowing, interest rates and even basic math. The Center for Economic and Entrepreneurial Literacy (CEEL) recently released a new survey underscoring the need for increased education on personal finance and economic issues. The national survey shows an overwhelming number of Americans are unable to answer some of the most basic questions about borrowing, interest rates, terminology and even basic math. More troubling is that many Americans admit to making poor decisions with their own personal finances. Startling highlights from the survey include:

∙ 54 percent of respondents could not identify what a subprime mortgage was.

∙ 56 percent of respondents could not identify FICO score as the most important factor in getting a loan.

∙ 65 percent of respondents could not identify what would remain if you subtracted 25 percent from 8. One in three respondents could not identify what 1 percent of 50,000 was.

∙ 75 percent did not know that when in need of short-term emergency cash, bouncing a check costs more than wire transfers, credit card advances and short-term payday loans.

∙ Half of respondents have overdrafted their checking account at one time, while a third of respondents have paid a bill late in the past year.

∙ 35 percent of respondents admitted to not having a family or personal budget that would allow them to conceivably eliminate their credit card debt by the end of 2009.



More details can be found at http://www.econ4u.org.

$2 Trillion in Property Loss Potential

Zillow.com reports that U.S. homeowners could lose more than $2 trillion in property value this year, resulting in approximately 11.7 million households owing more on their mortgages than the real estate is worth. U.S. home values fell by $1.9 trillion this year through the end of the third quarter, surpassing the $1.24 trillion lost in all of last year. Stan Humphries, Zillow's vice president of data and analytics, states, "Nationwide, we haven't had a drop like this probably since the Great Depression, in terms of how much value has been taken out of the housing market. The amount of negative equity that you're seeing out there right now is so great that it now has its own dynamic of causing people to walk away from their homes." This year's five worst-performing housing markets are all in California.

Plan to Help Troubled Homeowners Makes Headway At the Cost of Lenders

Los Angeles Times (12/11/08); Hong, Peter Y.Rep. John Conyers Jr., D-Mich., introduced a bill in the House on Dec. 10 that would allow bankruptcy judges to modify the mortgages of struggling homeowners. The Mortgage Bankers Association, the National Association of Home Builders and other industry groups lobbied for the removal of a similar proposal from the federal financial stimulus bill, but the NAHB has signaled that it is no longer opposed to having courts reduce payments and principal for homeowners. MBA has argued that forced mortgage write-downs would inflate interest rates by as much as 2 percentage points for all home loans. In California, monthly payments would rise by hundreds of dollars, according to MBA.

My concerns are for those lenders/servicers that do everything they can in order to work with the borrower(s) and proposing modifications to have some borrowers make 2 successive payments and then fall behind again. At some point, the regulators need to identify when the borrower's financial circumstances have changed in which they can't afford their living expenses and allow the lender to force liquidiation. If the regulators keep imposing tighter controls on how lenders manage their risk, then our credit markets will continue to shrink.

At some point, the borrowers need to be included in the blame of the housing collapse as well.

The Mortgage Industry Gives The Press Reasons To Criticize

It seems that our mortgage industry can't go one day without some sort of ridicule from the press. The past two Business Week articles have been expecially interesting with a lot of truth behind them, which in the past has always had me sratching my head that people would just get away with not doing things right. Well I am glad to see that the press is starting to get to those firms and individuals that just don't have the ethics and morals that the mortgage industry needs.

• Sex, Lies, and Mortgage Deals - Nov. 24, 2008 Business Week
• The Subprime Woves are back - Dec. 1, 2008 Business Week

Rather than me recapping on each of these stories, you should read them for yourself. These articles are windows into went went wrong within the lending side of the mortgage business. Keep up the good work editors, you are doing a swell job embarresing the mortgage industry.

The issue is the press and regulators keep this mortgage meltdown and credit crisis extremely one sided and the regulators have done an extremely good job making the consumers the victim when they are as much to blame as everyone else. People need to take responsibility for their actions and borrowers are equally to blame as the rest of the mortgage industry.

Goodbye 4 CAP's

Commercial valuations are going to be changing dramatically. Speakers at the Multifamily Executive conference also agreed that pricing in virtually all U.S. apartment markets will see dramatic changes through 2009 and probably beyond. They expect markets that saw 4% and 5% cap rate deals to soon start trading at 7% and 8% caps.

The Alt-A and Subprime implosion is now starting to spill over to the commercial markets.

Mark to Market Overview

Credit markets are frozen, banks are closing daily the Alt-A and Subprime market has for the most part been eliminated. This is not totally because of "toxic" mortgages, but has a lot to do with FASB 157, also known as"mark to market".

Each day, lenders must mark their assets to the marketplace. It's like you having to appraise your home everyday and, if your neighbor was under duress because she got very ill, divorced, lost her job and was forced to sell her home quickly, she may have sold it super cheap. Now, does that mean your house is worth that super cheap price, too? Clearly not. Why? Because you are not under duress. You have the time to sell your home and get a more normal price, which more accurately reflects true market conditions. But "mark to market" does not allow for this, which creates a vicious cycle.

Why is this so bad? Because, as lenders mark down their assets the amount that they have previously loaned becomes much riskier in relation to their assets. For example, say a bank has $1 million in assets and say they have $15 million in loans outstanding. Their ratio is an acceptable 15 to 1. But should they take a paper write down of $500 thousand due to "mark to market" requirements, their ratio suddenly changes to 30 to 1. This is because their assets are now only $500 thousand after taking the paper loss, while their loans outstanding are still $15 million. And at 30 to 1 this bank is viewed as a risky investment. So the stock price starts to get hit, it becomes harder to borrow, and most importantly harder to make money. The bank is then forced to sell some of its loans to reduce its ratio...at cheap prices. And this makes the vicious cycle continue.

How Rapidly Will Commercial Values Fall

Much like SFR's in mid-2007, it appears commercial values have reached their summit and its poised for a downward fall.

Reis Inc. reports that rents on U.S. office properties--including landlord concessions and discounts--were flat in this year's third quarter, the worst result for office-property owners since commercial real estate started to pull out of a prolonged slump near the end of 2004. The office market in suburban areas and smaller cities has been on the decline throughout the year; and now such previously immune, large metropolitan areas as San Francisco and Boston are experiencing vacancy-rate increases. Of the 79 markets that Reis tracks, vacancy rates increased in 66 and rents declined or were flat in 40. For the third consecutive quarter, businesses emptied more space than they took nationwide. In total, approximately 18 million square feet of space were vacated--the most since the first quarter of 2002.

The commercial market is quickly approaching the perfect storm - tighening credit market, reduced incomes, increasing vacancies and rising CAPs. Expect to see a 15-20% valuation drop from today's levels.

Mortgage Originations Down 44% in Third Quarter of 2008

Preliminary numbers compiled by Inside Mortgage Finance suggest that mortgage originations tumbled by $115 billion or 26 percent between the second and third quarters of this year. That would put 3Q08 mortgage volume down a hefty 44 percent from the same period a year ago. If mortgage originations remain weak in the fourth quarter, a distinct if not likely possibility at this point, total volume for the year will come in at only about $1.5-1.6 trillion or 34 percent below last year's $2.43 trillion level. Currently, the only sectors of the mortgage market that are seeing increased activity are FHA and VA. FHA originations, in particular, are continuing to grow while total volume declines. There are expectations that the federal government, which now controls Fannie Mae and Freddie Mac, will start loosening the two government-sponsored enterprises underwriting requirements and lower their fees in the months ahead. That could provide a badly needed boost to the residential mortgage market.

Key To Success

The mortgage industry is becoming extremely tricky these days and its not because Halloween is right around the corner. Although foreclosures only account for 3% of the current loans, we are experiencing historical changes within the banking community. Yes, people are still blaming the loose underwriting within Alt-A and Subprime loans for the recent mortgage meltdown, but I think firms got away from their core expertise.

Getting away from our core and losing our concentration on what we are good at can lead anyone towards a path of failure. Those brokers that are keeping their eyes on success are refocusing their efforts on sticking with what they know - identifying their client's needs, incorporating financial planning for their clients and developing better relationships with their lenders.

Brokers need to concentrate on rebuilding their profession, get involved with various associations to reeducate yourself, standout from the crowd and report those to the local authorities that give our industry and bad rap.

What Is A Yield Maintenence Prepayment Penalty?

It has been our experience that Yield Maintenance prepayment penalties have been a difficult notion to grasp by borrowers and mortgage brokers alike. In the current market environment, Yield Maintenance is more prevalent than ever. Therefore, having a good understanding of it can be an invaluable tool when selling a client on a multifamily or commercial mortgage loan. Below is an easy to understand explanation of Yield Maintenance for your reference.

Yield Maintenance: It sounds like a complicated and sometimes scary form of prepayment penalty, generally associated with Multi-family and Commercial real estate loans. It’s actually easier to understand and to calculate than it appears, and in some market environments, it can allow for a much less expensive penalty than the prepayment penalty system that you may be accustomed to.

When you settle into a loan agreement with a lender, that lender has already figured out the amount of money that they want/need to make on that loan, all the way through to maturity. If a loan is paid off prior to maturity, then the lender isn’t necessarily making that desired amount and may even be losing money. The solution for this problem is the prepayment penalty. By potentially paying an additional sum, you will be allowed to pay off the loan early, while the lender still benefits from the original transaction.

With a Yield Maintenance prepayment penalty, the lender will begin by calculating the amount of interest they would have collected beginning on the requested payoff date through the end of the prepayment penalty period. Their next step is to verify the cost of purchasing a US Treasury Bond. If they were to invest the money from the payoff of the loan in a US Treasury Bond, would they be able make the same yield (interest) with the same intended maturity date as they would have if the loan was not prepaid? If the answer is no, then the prepayment penalty will be calculated by multiplying the principal amount being prepaid by the present value of the difference between the remaining yield on the mortgage and the yield of a US Treasury bond, whose maturity date is equal to that of the prepaid loan.

Different factors can affect the amount of the penalty. If the loan is on the latter end of its yield maintenance time frame, then the chances of having a smaller prepayment penalty are greater than if it was in the earlier part of that time frame. This is simply because the amount of interest due through the end of the prepayment period gets shorter as the time frame gets shorter.

Interest rates are also a big factor. In a low rate environment, entering into a loan with a Yield Maintenance prepayment penalty can be a valuable tool. If interest rates rise and the yield on the US treasury bonds rise, then depending on how much interest is left to be paid, your prepayment penalty could be very low or even non-existent. In a high rate environment, the opposite could exist.

Offer Financing Solutions for Bankruptcy Attorneys

How many brokers out there are looking for a much needed niche to be
filled? One such niche I recommend is providing financing for those
clients currently in bankruptcy.

Unlike Alt-A and Subprime lenders (for those that haven't collapse
yet), NextGEN lenders are the perfect lenders for you to incorporate
into your daily product offerings.

Prior to marketing to Bankruptcy Attorneys, I recommend for you to get
up to speed on the current bankruptcy laws and learn the differences
between Chpt 7, 11 and 13.

Ways to market to these attorneys include:
- direct mailing
- cold calling
- attending bankruptcy seminars
- conducting your own continuing education seminars for attorneys

You may always contact a rep at Bridgelock Capital to learn more about
our Bankruptcy Bail out products at 877.NOFICO (877.663.4268).

Mortgage Fraudsters are getting what they deserve

In June 2008, more than 400 mortgage fraud suspects have been
arrested. It just amazes me the amount of Fraud that can be found
within our profession and I'm glad to see some of those getting
caught.

Fraud can be found from a number of sources throughout the loan
origination cycle from borrowers falsifying income documents,
appraisers overstating value and recently we have been noticing
fraudulent pictures that weren't even the subject property (we like to
report these directly to the appropriate authorty to get those
appraisers off the street), mortgage brokers and even lenders (be
warry of those individual private lenders promising to issue docs same
day).

Now more than ever shows the importance with having the right
relationships (vendors, brokers and lenders) to keep yourself out of
trouble. You need to be able to trust all parties within the loan
cycle.

Its no wonder that Alt-A and Subprime lending collapsed. I believe it
will be a matter of time when the individual investor stops funding
and all the remains will be the prime and nextgen lenders.

Planned Retail Closures

The following is a list of planned retail closures. After reviewing this list, you may want to ask yourself what CAP should we be underwriting these loans. If these firms are failing, you can only imagine what is happening to the single-tenant, mom and pop retail owners.

The following is an initial list of planned retail closures:
1. Ann Taylor is closing 117 storesnationwide.
2. Eddie Bauer to close more stores.The company has already closed 27 shops in the first quarter and plans to closeup to two more outlet stores by the end of theyear.
3. Cache is closing 20 to 23 storesthis year.
4. Lane Bryant, Fashion Bug, andCatherines are closing 150 stores nationwide.
5. Talbots, and J. Jill are closing all78 of its kids and men's stores. Now the company says it will close another 22underperforming stores. The 22 stores will be a mix of Talbots women's and J.Jill.
6. Gap Inc. will be closing 85stores.
7. Foot Locker to close 140stores.
8. Wickes Furniture is going out ofbusiness and closing all of its stores.
9. Levitz, the furniture retailer, isgoing out of business and closing all 76 of its stores in December.
10. Zales, Piercing Pagoda plans toclose 82 stores by July 31. It has also announced that it is closing another 23underperforming stores.
11. The Walt Disney Company subsidiaryChildren's Place filed for bankruptcy protection in late March. Walt Disney, ina news release, said it has also obtained the right to close about 98 DisneyStores in theU.S.
12. Home Depot has 15 store closings.
13. CompUSA clarifies details on itsstore closings. Any extended warranties purchased for products through CompUSAwill be honored by a third-party provider, Assurant Solutions.
14. Macy's is closing 9stores.
15. Movie Gallery is closing 160 storesas part of reorganization plan to exit.They plan to close 400 of 3,500Movie Gallery and Hollywood Video stores in addition to the 520 locations thevideo rental chain closed last fall.
16. Pacific Sunwear is closing 153 Demostores.
17. Pep Boys is closing 33stores.
18. Sprint Nextel is closing 125 retaillocations.
19. J. C. Penney, Lowe's, and OfficeDepot are scaling back.
20. Ethan Allen Interiors announcedplans to close 12 of 300+ stores in an effort to cutcosts.
21. Wilsonsthe LeatherExperts is closing 158 stores.
22. Sharper Image: The company recentlyfiled for bankruptcy protection and announced that 90 of its 184 stores areclosing.
23. Bombay Company: The company unveiledplans to close all 384 U.S.-based Bombay Company stores.
24. KB Toys posted a list of 356 storesthat it is closing around theUnited Statesas part of itsbankruptcy reorganization.
25. Dillard's plans to close morestores.
26. Steve and Barry’s Clothing, whichhas 240 stores filed for bankruptcy.
27. Starbucks is in the process ofclosing 600 stores.

Commercial Lending Conference Interview - San Francisco

Financing For LLC's Getting Tougher

I just came across this article about Freddie Mac's new lending changes making it more difficult for LLC's to obtain financing. This is just another reason why NextGEN Lenders will become more important within broker's product offerings. It is becoming more and more evident that the credit crunch with the collapse of Alt-A and Subprime financing is creating enormous opportunities for NextGEN Lenders (aka Hard Money).

Holding Property in an LLC Just Got Tougher
by Diane Kennedy, RealtyTimes
Chances are, as a real estate agent, some of your clients are real estate investors. If that's the case, they may have been rocked recently, to learn about Freddie Mac's new lending changes going into effect on August 1, 2008. This rule change could mean hundreds of thousands of real estate investments are now in the wrong business structure.

Freddie Mac, one of the two largest underwriters of conforming loans on the secondary market, have changed their internal rules to state that they will no longer refinance a property that has been inside of a Limited Liability Company (LLC) for any time within the past 6 months.
Conforming loans are typically used for single family homes and four unit properties (also known as four-plexes or four family homes) that fall within certain loan limitations. It's the backing of Freddie (and Fannie Mae, the other major underwriter) that keeps the loan rates for these type of loans so much lower than the rates for stated income, jumbo loans and any other loan that doesn't fit within their criteria. In other words, if you've got a great deal on your loan, chances are it was underwritten by Freddie or Fannie.
With this change (and potential change, in the case of Fannie), that means if you have a conforming loan, you have 3 choices:
(1) Never refinance. This is not my favorite strategy because you end up losing the velocity of your money.
(2) Go bare. Don't put it in a business structure to protect the asset. This is definitely NOT recommended. You put all of your personal assets at risk with this plan.
(3) Use a Trust SandwichTM. The Trust Sandwich puts a Single-Purpose Trust in place to hold the asset, the LLC owns the beneficial interest and there is then a Main Trust to provide estate planning as well. It's the best of all worlds. I've got more information about it at, www.trustsandwich.com.
Since I broke the news to my clients and TaxLoopholes.com members about the changes, one of the biggest questions I've been getting is why isn't anyone else talking about it. To be honest, I don't know. The press release issued by Freddie Mac was pretty clear. It said (in part):
"We are revising our requirements for Investment Property Mortgages to reduce the number of financed properties in which a Borrower who owns more than one financed Investment Property may have an individual or joint ownership interest (including the subject property) from 10 to 4. Also, effective for Mortgages with Freddie Mac Settlement Dates on or after August 1, 2008, the Borrower on a cash-out refinance Mortgage must have owned the subject property for at least six months prior to the Note Date of the new refinance Mortgage."
The last statement is the key -- transferring title into your name before applying for a cash-out refinance will be considered a change in ownership and the 6-month trigger will apply. This change won't affect most homeowners, but it has caused a major ripple in the investor community, as has the reduction of properties an investor can own and still get Freddie Mac refinancing.
As a real estate investor myself, I think the timing of this announcement is lousy. Smart investors are positioning themselves to take advantage of our current market. House prices vary wildly throughout the country -- some areas are seeing growth, while others are flat and others are still depreciating. But I've been through many real estate cycles and one thing is absolute: prices won't stay low forever. As they begin to rise again investors will once more be looking for ways to leverage their equity as beneficially as possible. It will be interesting to see if the private mortgage companies will rise to meet the needs of investors when the market rebounds.

Uncommon Solutions for Common Issues

How many times in your broker or lender career have you come across a
family that is equity rich, but cash poor? This is a common occurrence
when individuals don't adequately plan their estate for their heirs.

NextGEN Lenders are able to meet those needs for estates currently in
probate that has the equity but not enough cash to cover monthly
expenses. Unlike Alt-A and subprime lenders, NextGEN lenders are able
to look outside the box and make common sense deals work. While most
lenders will only lend to natural persons, NextGEN Lenders are able to
lend to Estates, Trusts, Corporations and Partnerships.

By incorporating NextGEN Lenders into your daily product mix can open
the doors to opportunities with probate attorneys that weren't
available to you in the past.

To learn more about my probate lending solutions, please feel free to
contact me at 877.NOFICO.8 (877.663.4268).

SB 1137 - How It Effects NextGEN Lenders

The provisions of SB 1137 although are somewhat burdensome are
manageable for beneficiaries, loan servicers and trustees.

Why was this such an emergency for legislators?
1. unprecendented number of foreclosures affecting CA economy
2. adverse affect on housing prices which leads to lower property tax revenues
3. feel lenders are contacting problematic borrowers

What is covered? All loans made from Jan 1, 2003 to Dec 31, 2007,
where loans are secured by residential real property and are
owner-occupied.

Preconditions to recording notice of default:
- contact is made as required by SB 1137 or
- 30 days after satisfying the due diligence requirements

Contact with the borrower:
- contact the borrower in person or by telephone
- assess the borrower financial situation
- explore options

If you tried contact on 3 separate times in 3 separate days with no
response within 2 weeks, you must send a certified letter.

On Website:
- toll-free number on website
- toll-free number made available by HUD to find a HUD certified
housing counseling agency
- options that may be available to borrowers who can't afford their mortgage
- list of financial documents borrowers should collect and be prepared
to present to the beneficiary or authorized agent

When an NOD recorded on or after 9/8/08, must contain a declaration of
compliance with civil code š 2923.5

At the end of the day this new bill will affect those only who run a
loose ship and not servicing correctly. Those NextGEN lenders who are
lending for the right reasons, who really want to see the borrower
perform on their loan and is willing to workout arrangements with the
borrower, will not be all that impacted. Hopefully, they may even see
their delinquencies decrease due implementing SB 1137.

Lenders/Servicers have 60 days to implement this.

New Home Valuation Code of Conduct

The New Home Valuation Code of Conduct that has been proposed by FNMA
& FHLMC and scheduled to become effective Jan 1, 2009 really misses
the boat for NextGEN Lenders.

Under this code, the requirements look to establish the appraisal
selection process, compensation, conflicts of interest between the
appraiser, broker and lender while providing appraiser independence.

Impact to the consumer:
1. Higher appraisal costs
2. Inability to shop their loan for better rates and fees
3 Can't see the appraisal since the appraisal belongs to the lender.

Impac to the broker:
1. Unable to order an appraisal which I personally agree with due to
conflicts of interest
2. Unable to shop loans which isn't a bad thing for the lenders.
3 Unsatisfied borrower with the broker if the lender denies the loan.
4. Slower new lender submissions and approvals since transfering the
appraisal to a new lender needs approval by lender prior to release.
Impac to the Lender:
1. Responsible for ordering, retaining and paying for the appraisal.
2. Those personnel ordering the appraisal need to be independent of
the lenders loan production staff.
3. Prohibited from bullying the appraisers, but the only time we need
to bully is due to fraudulent appraisal submissions and not because we
want higher value. That usually is done by brokers and borrowers, not
the lenders.
4. Randomly QC at least 10% of appraisals. Being a NextGEN Lender, I
can understand why so many Subprime and Alt-A firms failed taking
appraisals at face value.
5. Provide a toll-free hotline
6. Provide a copy of any appraisal report free of charge within 3
days of closing the loan.

Impac to the appraiser:
1. None since they can charge for each transfer.

Our lending industry missed the boat by not making appraiser more
accountible for their actions and why should an appraisal be different
for a Prime lender vs. Alt-A Lender vs. Subprime Lender vs. NextGEN
(aka Hard Money) Lender? It shouldn't and feel the borrower should be
the one responsible to compensate the appraisal company and be
provided a copy of the appraisal at the same time the lender who
ordered the appraisal receives a copy. If appraisers are immediately
accountable for their appraisal at the time of the appraisal
regardless of who the lender is, it will be at this time fraud
appraisals will stop entering into the mortgage marketplace.

Lenders are accountable for their money at risk and feel that
accountability needs to be even with appraisers and brokers
participating in some of the risk. We all need to work together to
improve our industry and remove those who are dishonest.

Difference In Commercial Submission - NextGEN Lenders vs. Conventional Lenders

For those of you new to the commercial industry, don't let the lack of knowledge or larger set of paperwork required for commercial submissions. Incorporating NextGEN Lenders (aka Hard Money) can help streamline your learning process and obtain quicker commissions since funding typically occur within 10-15 days vs. 60+ days for conventional lenders.

In Order to expedite your submission from origination to funding should include a well organized Executive summary. An Executive Summary is a concise, but thorough overview that would include the following (shouldn't exceed two pages):

• Property Description - subject property address and APN, general overview about the property type, tenants or if it is owner-user, appraised value/estimated value, number of units, number of parking spaces, square footage and lot size
• Income & Expenses - current monthly income, current monthly expense, current monthly net operating income and a general explanation of value if valuation needs to be focused on potential (future) gross income or recent sales.
• Loan Amount Requested
• Loan Purpose/Story - you should come clean on this and bring all of the "skeletons from within the closet out of the closet" since the majority of the hard money lenders invest their own money and typically will personally walk the property prior to funding. Most undisclosed issues usually have a way of exposing themselves so come clean upfront to help build more trust and confidence with the lender
• Exit Strategy - loan term requested and how does the borrower intend to get out of the short-term loan (i.e. refinance? selling?)
• Any additional information to be considered for underwriting purposes - NextGEN lenders (aka. Hard Money) have the ability to be flexible with their underwriting as well as having the creativety crossing multiple properties into a single loan.

You will also want to include these other items with your detailed Executive Summary:

• 1003 or Commercial Application - fully completed
• Color photos of the subject property or an appraisal if you have one. Many NextGEN lenders are able to quickly determine valuation and have the ability to fund transactions without an appraisal.
• Operating Income/Rent roll

NextGEN Lenders should be able to get a letter of intent (LOI) within 48 hours and fund within 10 days or less. Although the pricing may be higher, if your borrower has a weak balance sheet, needs additional capital to help strenghten the financials to better position themselves for better conventional financing, then short-term bridge financing may be the best option for your borrower.

Client For Life Strategy for Lenders

Announcing a whole new “Client for Life” strategy for lenders
For years great businesses have seen increased profits with a “Client for Life” commitment and quickly identifying that 20% of the customers create 80% of the revenue. Focusing on those core client for life customers, allows you to build a solid bottom line. Over the last few years, with many lending businesses, the bottom line started coming before the relationship with the client. If you are a lender and want to continue to grow and be in the market as it changes, get a hold of the strategies below and understand the Pareto Principle for building a solid business and more importantly solid relationships.

In order to survive in today’s mortgage climate, brokers need to adopt a true “Client for Life” philosophy. No longer can a broker simply view each customer or lender as a simple transaction, but must conduct a new way of thinking that has been true in the most successful businesses for generations. It’s no wonder that the majority of lenders are getting out of the wholesale business and marketing directly to the retail customer. Over the past decade the excess flow of capital, loose underwriting guidelines, and pressures to meet investors funding demands created a culture within the broker community to focus on solely obtaining new transactions and not repeat business. This eventually led to the collapse of the securitization market and the downfall of the Alt-A and Subprime market.

The credit crunch, following the collapse of the Subprime and Alt-A markets, has created challenges and uncertainty for many mortgage brokers and lenders. Only those brokers that can adapt to a new paradigm that strategically aligns their interest with the interest of lenders and customers, will survive the NextGEN way of conducting business within the mortgage space. It’s the times of greatest uncertainty that offer some of the biggest opportunities for professionals. For brokers to ensure their survival, they need to be more focused and implement a strategic “Client for Life” code of conduct.

The following ten strategies are needed to help you transform a world of chaos and negativity into a field of opportunity.
1. Forget your complaints and focus on new strategies to keep you in business. Complaints only bring your attention to all of the negativity and block your ability to strategically come up with a new and improved business model. You will need 100% dedication to formulating this new business strategy and you just don’t have time to waste on negative thoughts. Make a conscious effort to look for and listen for what is going right daily.
2. Forget about the way it was in the past and focus on how the environment is today and tomorrow. Yes the past can teach us valuable lessons, but what we do know today is that the way business was conducted yesterday didn’t work. You need to focus on what is needed today which will lead to your ultimate survival. Get a hold of what is working in other businesses. Too many times we focus on what others do wrong instead of looking for their competitive advantage.
3. Forget about the difficulties and focus on the solutions. Inventors didn’t create new gadgets, philosophers didn’t create new ways of thinking, and adventurers didn’t discover that the world was round because others told them their way was impossible. You need to get yourself away from the herd mentality to find solutions for today’s climate. The herd will continue to support their limited belief. Remember that newspapers would not print the original success of the Wright Brothers because man had proved he could not fly. Fly!
4. Forget about the losses and focus on the opportunities. Negativity creates further negativity. By simply focusing on all of the opportunity life has to bring us, we will create more opportunity. Don’t let this business pass by you. Be among those that survive. Look for survivors and find out what they are doing.
5. Forget about the sales and focus on how you create value. A salesman needs to sell others on your idea, but creating value brings customers who will refer other customers needing your services. Value creates word of mouth marketing that no television ad could ever create. According to the Nielson Agency we are bombarded with over 3000 advertising messages daily. Only those people we trust get their recommendations and referrals through to us.
6. Forget about yourself and focus on helping others obtain their goals. By putting others first, you will show others that you care for their well-being. Customers deserve to be held with the utmost respect and you will be nicely rewarded for it.
7. Forget about the transaction and focus on strengthening your relationship. Establishing relationships helps close the sale without even selling a product or service. Become the expert amongst your peers and you will see your business prosper. When people know that you are a resource of knowledge, they turn to you. They see the value that you bring to the table. Delivering value to your relationships helps strengthen them and therefore transactions no longer exist.
8. Forget about being reactionary and focus on time management. Customers want to deal with professionals in high demand. Use your time wisely by having set times to check voicemails, return calls, schedule meetings with your clients so you may interview your client without being interrupted, and schedule set marketing programs so you are consistently in the mind of your customers. The best leaders and business builders always respond and responsiveness requires good time management.
9. Forget about how your lender can help you and focus on how you may become a partner with your lender. In today’s volatile marketplace, lenders feel more comfortable when their interest is aligned with their clients (i.e. the mortgage broker). Let the lender know that your philosophy is alongside with their philosophy and you will remain in constant contact with the client throughout the life of the loan to ensure that the loan performs. This requires stepping away from the old turn and burn mentality of the industry. It requires a complete overhaul of your values, beliefs and most of all it requires your commitment to become your lenders partner.
10. Forget about simply being a mortgage broker and focus on how you can make a lifetime change in your client’s life by being a professional mortgage planner. Clients’ financial situations continuously change from job losses, inheritance, marital status, or even a death in the family. Becoming their life planner will ensure a lifetime of business. While everyone else is going out of business or trying to revitalize files, separate yourself by being your client’s true asset, their professional mortgage planner.

By adhering to these ten simple strategies it will lead to lifelong relationships thus creating business opportunities and thus surviving these turbulent times, most importantly allowing you to maintain good quality of life standards. It is important to bring more professionalism within the mortgage business and customers are counting on you.

As most great business owners, sales people and leaders know: people work with people they like. We are attracted to people like ourselves and people that care about our welfare. Take the time to listen to your clients, build trust and allow them to see that you are in it for the long-term. When you get a feel for all that is necessary to live life to the fullest you will build great relationships which will harvest new opportunities rewarding you with repeat business and an abundance of referrals. Creating “Clients For Life” is not a business philosophy but is a way of life. Enjoy your new beginning.

NextGEN Lenders Can Help Keep Credit Scores Up by 300 Points

It's no wonder that due to the recent Subprime and Alt-A implosion, credit is drying up and borrowers are falling behind on thier mortgage payments. By integrating NextGEN (aka Hard Money) lenders into your product mix can not only provide liquidity to the mortgage industry, but can help strengthen your borrower's credit. Below is a recent article published by the MBA discussion how foreclosures damages credit scores by up to 300 points.


Foreclosures Damage Credit Scores Up to 300 Points
MBA (6/27/2008 ) Murray, Michael
Some borrowers facing foreclosure—who decide to drop a property rather than attempt to work out mortgage repayments—could face credit issues that prevent them from purchasing a home within the next five years, industry experts said."I do believe that people, unfortunately, are making the very poor decision to simply walk from a home thinking that perhaps—maybe too soon—they would simply be able to buy a new home when that is absolutely not correct," said William DiPaolo, managing partner at Cogent Road, San Diego.

Industry experts said foreclosures could drop credit scores from 100-300 points, making it nearly impossible to obtain a mortgage from Fannie Mae, Freddie Mac or FHA anytime soon.
"It's kind of surprising, but it depends on the individual case as to how many points your score will actually drop," said Ron Litt, principal of Ron Litt Consulting, Houston.
Litt said, for example, a borrower with strong credit who was unable to sell an investment property purchased before home values fell, could decide to foreclose on the home rather than rent it out. That borrower could possibly purchase a home in two years, assuming other credit was not damaged during that time.

"There are very high standards for credit these days. As long as a [borrower's] credit is in decent shape, it is good enough to get the loan. The foreclosure is going to have an impact on the score, but as long as the rest of the credit is good enough, the borrower should be okay," Litt said. "Within a year or two, you could probably get a loan for a house depending on your credit. However, you can forget about an FHA loan for about five years."

Litt, however, also said the most damage on the score is not necessarily the foreclosure but the consistency of late payments. After a foreclosure, Litt said a former homeowner could take one to two years to fix up the credit report but, during that time, other losses impacting scores can include liens from second mortgages, unpaid homeowners association dues or unpaid property taxes placed on the credit report."The foreclosure itself, although it's a big thing, it's not an isolated action," Litt said. "It carries alot of subsequent consequences with it that can affect your credit."

DiPaolo said that in today's credit environment, a 60-day late borrower on a home "may as well forget" about receiving a Fannie Mae loan.

"The foreclosure of debt in someone's life is the greatest single indicator of risk a bank can ever have and because of the headlines, it's also now working on the banks—especially Fannie Mae—to look much, much more closely at that foreclosure event," DiPaolo said. "A foreclosure event in someone's life will affect their credit score 200-300 points, in effect blasting anybody—no matter how good your score was before that—out of the ability to qualify for a mortgage. Even at excessive rates, you're just going to have to rent."

DiPaolo said San Diego County represented the third or fourth highest region as an overall percentage of foreclosures, but the percentage of foreclosures compared to loans in the pool was under 1 percent.

"Let's always keep in mind that the vast majority of people are still paying their mortgages on time," DiPaolo said."If it is at all possible to avoid foreclosure, you want to do that," Litt said. "There are other ways to do [avoid it], and it will have an even lesser impact on the credit score than taking the foreclosure route."

As a mortgage broker bringing you this transaction, how do I get paid?

NextGEN financing (aka Hard Money) is no different than conventional financing. It is simple. You bring the company a borrower. They price the loan to you. (Think of yourself as a wholesale buyer.) You price the loan to your client, adding your fees as appropriate. You stay involved in the loan (or not) as you choose and prior to closing, you submit a fee demand to them and they include this in their lender documents for you to be paid directly from escrow. NextGEN (Real Estate Hard Money, Hard Money Lender) lending is on demand and is a great source for you to tap into as a broker.

How fast can private money loans (hard money loans) close?

NextGEN Loans (aka Hard Money) can be closed in as quickly as 3 days, but more typically, you should figure on 10 days. (Keep in mind that it is only with a complete loan submission.) Remember a NextGEN hard money lender will want to take the time to build a relationship with you, so that you can do repeat business and get to know how you work together. Take the time to build this relationship with your NextGEN Lender and you will see the benefits, which can include faster turn around time.

What is a complete loan submission for a Hard Money Lender?

A complete Hard Money Loan typically includes the following. However, it is always best to check directly with the NextGEN Lender (Hard Money Lender) that you are using.
Fax: Submission Form
Fax: 1008/1003
Fax: Credit Report
Fax: Broker Disclosures
Fax: Prelim/Title Commitment
Fax: Signed Borrower Authorization
Fax: Payoff Demands
Email: Appraisal (or current color pictures if no appraisal)
Email: FNMA 3.2 File

Take the time to build a relationship with your Hard Money Lender, NextGEN Lenders know the importance of this relationship and will work with you throughout the entire submission process.

Laws of Attraction

You know the saying "Birds of a Feather Flock Together". We can see this with the recent subprime and Alt-A implosion which was caused by poor underwriting by the lenders, fraudulent appraisals pushing values and brokers more worried about their commission rather than submitted good, qualified borrowers for financing. It's no wonder that the majority of the subprime and Alt-A lenders imploded and the ones left are getting out of the wholesale business. Lenders feel that they have more control when they deal directly with the borrower instead of having an intermediary between them and the borrower.

This leads us to the new lending arena which I phrase as the NextGEN Lending arena in which you have a true partnership between the broker and lender working towards a common goal, funding good, qualified borrowers that are able and willing to meet their mortgage obligations.

Over at Bridgelock Capital, they are steering into a new direction in forming a partnership with quality brokers that understand the importance with their relationship with the lender. Brokers need to be involved with the lender through the life of the loan and fully incorporate a "Client for Life" mentality. Over at Bridgelock Capital, we are a hard money lender offering transitional capital to borrowers experiencing financial difficulties. The way we differ is that we want to work with the borrowers to implement a credit management service that helps the borrowers improve their credit rating and help with the negotiation of their debt. We want to help borrowers obtain a new beginning and transition them into better financing down the road.

Brokers working with Bridgelock Capital need to understand that when they bring a client to us, we look to incorporating the broker throughout the loan process and if our loan becomes delinquent, we ask the broker to get more involved. With this mentality, we have a true partnership between the lender and broker.

I urge all brokers to join us in this new ideology, the NextGEN Lending arena.

What sort of credit and financial stability does a Hard Money Lender require from the borrower?

Many hard money lenders have specific underwriting guidelines, you will see that NextGEN Hard Money Lenders will many times underwrite a file with a common sense approach. Some hard money lenders might call this out-of-the-box underwriting, but NextGEN lenders just view this as a great way to provide creative solutions for customers. As far as credit, their some hard money that do not look for a perfect credit score. Some hard money lenders do look for patterns of payment over time and understand that everyone encounters financial hardship at sometime in their life. A great company would want to be there to help your borrower and help transition them into better times, this is the common thread among NextGEN hard money lenders.

When Will Appraisals Be Worth More Than The Paper They Are On?

Although I've been in the hard money lending business for quite some time and have never relied on selling my loans to another investor (institutions and/or wall street), it still amazes me with the lack of integrity appraisers have and the fall of the subprime market and securitization in general. They are still pushing values even in todays market climate. There isn't a day that goes by when I don't see appraisers pushing values. How can someone say a value is based on a sale 7 months ago in this down market environment? And better yet, using comps over a mile away in a conforming neighborhood when there are listings next door to the subject property 20-30% less than the appraisal.

I just want to say - wake up appraisers and start valuing properties correctly since the NextGEN lenders will critically analyze the trustworthiness of the appraisal. As if you didn't know already, you need to start taking into consideration the following for valuations:

• Comps within the same neighborhood
• Recent sales within 45 days or less
• Current listings - this includes both retail listings and REOs
• Be objective and quit listening to brokers regarding what value needs to be at. It is your job to let them know what the value is
• Days on market - if a property isn't selling then obviously the property isn't listed at the correct price and needs to be reduced

Appraisers owe it to their clients (i.e. borrowers, brokers and lenders) to keep expectations in check and value the property correctly. The industry really needs to keep a score card on appraiser's accuracy in determining true value. Remember, the fall of the Subprime and securitization can be partly blamed on quality of appraisals. You owe it to yourself to help rebuild the trust within the appraisal system. The rise of the NextGEN lenders will be keeping a close eye on value.

What is the most common use for private money (aka hard money or private equity lender)?

The most common loans for hard money are typically sub-500 borrowers, foreclosure bailouts, bankruptcy buyouts, non-conforming borrowers needing to go stated income, have an existing notice of sale (NOS) or notice of default (NOD), need quick cash-out or just doesn’t meet conventional underwriting guidelines. There are many reasons why borrowers need access to private money, in fact, private money is now becoming the new sub-prime lender, known as NextGEN, with the recent market turmoil. NextGEN lenders are willing to help their clients get through the hard times and be a path to a solution and financial freedom.

What are private money interest rates?

Private money rates generally range from 10% to 15%. The rate is determined by looking at a combination of factors: (a) LTV ratio, (b) strength of borrower, (c) condition/desirability of property, (d) actual cash-in or real equity contributed by borrower. Typically our rates fall in the 11%-13% range.

What is Private Money used for?

Private money is generally used as a bridge: a way to get from point A to point B. It is generally a short to medium term solution (1-6 years) and there is nearly always an exit strategy going in. It is used for all types of real estate secured financing: commercial retail, restaurants, hotels/motels, marinas, elder care facilities, industrial, agricultural, raw land, land development, construction, rehab, multi-family and even single family homes.

What fees are involved in hard money lending?

Hard Money Lenders and Private Equity Lenders charge a loan fee which equals to a % of the gross amount of the loan as well as their administrative and underwriting fees. You have to watch for hidden fees, always ask for a rate sheet. Know all fees going in to your relationship with a hard money lender, so there are no surprises later for you.

Can you use proceeds from a hard money loan to pay the fees?

Yes, if there is enough equity in the project, you can pay hard money loan fees with proceeds from the loan. This is frequently the case when working with a hard money lender.

Is there pre payment penalties on a hard money loan?

Many private equity lenders will not have the flexibility to meet your needs, or if a broker your clients needs. A good private equity lender will not try to fit all borrowers into the same matrix and allow for customization to the borrower’s needs. Because of this, some of the programs have pre-payment penalties and some do not. However, one option is to buy-out the prepayment penalty.

Why would anyone pay such high fees and rates for a hard money loan?

There are many reasons why a borrower would choose to use private money (hard money) over a cheaper institutional option, but typically either the borrower or property doesn’t meet conforming lender guidelines. For example, professional real estate investors like to use private money when buying because they are able to make offers which are not constrained by long timelines and numerous rigid conditions found with most lenders. Often times speed is a very significant factor in completing a profitable transaction and in those cases it often makes sense to pay for a short-term private money option rather than lose the deal. Frequently the condition of a property won't allow for initial financing with conventional money and in those cases private money may be used. Often, the type of property is a factor. Banks don't like lending on raw land and lots, but private money lenders are more inclined to do so. Cash leverage is another factor.
The structure of the deal may be a factor. Most private money lenders allow the buyer to establish their equity through the mechanism of a seller carry back; banks won't do this. The list goes on and on for reasons and benefits in using private equity.

Do hard money lenders require an appraisal?

Most hard money lenders prefer to have an appraisal since they provide them with a professional opinion regarding value. However, some files are time sensitive and just don’t have time for an appraisal to be completed. That being said, some hard money lenders prefer to have appraisals for their analysis and NextGEN lenders have the flexibility to make decisions without one.

What is the approval process for a hard money lender?

There are basically four steps in the approval process for hard money lenders. The borrower (or a representative for the borrower) runs the scenario with an account executive. If the scenario is acceptable to the hard money lender, the company requires a complete loan submission.

How long does it take to put the loan together?

Many companies generally ask for a minimum of 10 days from the time they receive the loan submission until closing, though some can close faster to accommodate special circumstances.

As a mainstream mortgage broker, I don't see much of this type of thing. Why should I be interested in private money?

Some believe that mainstream mortgage brokers are being squeezed out of the industry. Lenders are ramping up their operations to better provide online loan sourcing directly to borrowers. Many saw a similar thing in the travel industry over the past years. The travel agents that have survived and even thrived, are the ones who effectively established niches within the industry. Some believe that the same will be true for mortgage brokers. Plain vanilla loans can be easily processed in an assembly line fashion which easily translates to the world of the novice and a web browser. Niche lending, on the other hand, tends to be a hand-crafting of sorts and cannot be easily automated. Look at private money to help build your niche. There are no absolute rules. Many factors must be considered in making a decision and frequently those factors are intangible. Ultimately a high degree of thought, work, and commonsense is involved. Private money will always be a people process. So if you say, "I am not interested in private money because I don't do unusual loans," some will tell you, "You might want to reconsider." When you reconsider find out ahead of time if they are a NextGEN Lender. When people matter, NextGEN is a must.

Why do they call it "hard money"?

It is difficult to find an answer to this question. Plenty of speculation has been heard. Some people say that it's because the money is used for "hard to do" loans. Others say it is because the loans are "hard to get" or "hard to pay." Some believe that it is called hard money because traditionally it has been "real money" in the sense that it is not borrowed. Institutions loan borrowed money and in this sense, they loan "soft money."