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My hands were sweaty as I nervously darted my eyes around  the craps table .  I was the pariah because I was “betting on the don’t line“.  This particular strategy can be extraordinarily frustrating when a table gets hot.  It requires a bettor to double up his stake each time he is incorrect.  It takes incredible faith in the mathematical probability of a negative result.

“Seven Out!” yelled the croupier.

Victory, while inevitable, doesn’t really feel that sweet.    I risked $2500 to win five bucks.  I  proved my strategy to the reckless gamblers betting the other way. I yelped exuberantly, not for my intellectual superiority, but in relief that my bet, the family vacation money, hadn’t disappeared.  While I was yelping, the players at my table were pocketing pink and black chips and cheering raucously.  Confused, I learned that they were collecting chips every time those dice hit various numbers on the way to making ten straight points.

Now craps may seem like a poor analogy to the real estate market.  It really isn’t.

READ ON HERE (will open in a new window) 

Happy New Year Active Rain!

This article is posted on Bloodhound Blog today and will be posted on NELA Live and America's Most Opinionated Mortgage Broker. 

Principals or agents?  What's the difference?

Private mortgage lenders are typically high net-worth individuals or pension funds.  They are principals or people with money.  Sometimes those principals delegate certain loan origination functions to loan brokers (who are agents).  Some of the common functions we perform for our private mortgage investors are:  due diligence, loan structuring, financial analysis of a borrower,  valuation of the subject property, identifying an ability to repay the loan, and determining the credit-worthiness of a borrower.

How many agents in a private mortgage loan transaction are too many?   I think that question can be answered by asking another question; what value does the agent bring to a transaction?

Continue on to full article

How is Xenophobia best cured with a plate of popcorn lobster and a beer?

In the tradition of East meets West ...Active Rain Get Together, I had the opportunity to meet my online nemesis, Jeff Corbett, for dinner this evening.  Now, Jeff is really not my nemesis.  We did a little blog battle a month ago but had some opportunities to counter-blog and counter the counter blogs to gain some better insight about our respective opinions.  A few e-mails into the deal, we recognized two things:  we both want the same things (more of mo' better business), and that we had an opportunity to meet face-to-face when he traveled to the Coast for business.  I'm really glad we did.

Jeff Corbett is categorically guilty of not explaining his virtuous and revolutionary ideas to people behind the learning curve.  Now, I'm using this term "guilty" here because I want you to experience the affirmation of my early conclusions about Jeff. I suspected that he was probably correct in his concepts of transparent mortgage origination practices, was deploying a provocative marketing message to call attention to the deceptive practices in our industry , and was WAY ahead of me on this Web 2.0 thing.  I was right on all three counts.

Let me explain this "learning curve" thing to you.  I started blogging in August here on Active Rain. "Web 2.0 " to me was something you saw on a Rawlings baseball glove .  "Consumer-centric" to me was the under 10 items line at the grocery store.  The education I've received in this three month experiment has been invaluable; tonight's dinner was the cherry on top of the frosting on top of the cake. Tonight, I can effectively explain what "mash-up technology" is and what "RSS feeds" are.  The Villanova School of Business, a fine institution, never could have moved me along a learning curve as quickly as Active Rain has.

So what have I learned from this experience?  Don't be scared of the unknown.  Don't feel embarassed or stupid about asking questions about the unknown.  Don't be scared to tell some of the Web 2.0 big-thinkers that they need to "dumb it down" a bit so you can understand their message.  Don't be scared to ask someone to dinner.  Don't be scared to pick up the phone. 

Jeff Corbett is actually a pretty shy man.  He's unassuming, unfailingly polite, and a true gentleman.  Get him talking about what we do for a living and his eyes light up, his hands start moving, and his animation grabs you and transports you to a better tomorrow.  It was like watching Ronald Reagan make the Shining City Upon a Hill speech in 1974.  Jeff made a great comment about Active Rain tonight.  He described the Active Rain Real Estate Network as one filled with forward-thinking people who voluntarily exchange good information with absolutely no ulterior motive other than to improve the way we do business with the consumer.  That is pretty cool.

Jeff Corbett is definitely guilty.  He's guilty of having the hare-brained notion that people with ethics and a keyboard will change the way that mortgage origination is done in this country. He thinks the consumer AND the ethical originator will benefit from that hare-brained notion.  He wants YOU to get in line behind him....

...right behind me.

Why would a borrower with a 736 FICO score get a hard money loan?

I'm deviating a bit from my earlier blog, So you want to be a California Hard Money Broker?  I know I promised more detailed information about  the disclosure process in California Hard Money transactions and I will.  Tonight, I'm not up to that arduous task.  I'll share with you some reasons why a borrower with GOOD credit would actually pay the high points and rates associated with a "hard money loan"

Introduction:  Private mortgages or "hard money" loans are all about taking on risk that is unacceptable to conventional lenders.  This loan is most commonly known for the "foreclosure bailout" but can be useful for an investor looking for a quick loan approval to take advantage of an extraordinary property. 

Small Apartment houses:  We often get requests from multi-family investors for a loan that allows a seller-carryback behind it.  Multi-family loan underwriting is driven by the income derived from the property. The traditional multi-family lenders are anal about this ratio called "debt service coverage".  Now we tend to understand that a property can go through a renaissance by some minor cosmetic improvements.  We know that the  improvements will result in higher rental income and subsequent higher values.  We are willing to accept a subordinated seller-carryback for an investor who wants to purchase a property with negative cash flow provided he has a detailed plan on how to improve the property and restore the DSCR through higher rental income.

Vacant Land:  Traditional vacant land lenders are wary of seller-carrybacks.  We are willing to lend up to a certain value on vacant land with a seller-carryback up to 100%. Our rational is that the market risk has been transferred to the seller with this type of loan transaction.  If we are comfortable owning that vacant land at the loan amount (usually 50% LTV), we'll make the loan.

Owner-Occupied Commercial:  Traditional commercial lenders won't lend on an owner-occupied commercial building for fear of the business risk associated with the borrower.  If we feel that the property has utility in other businesses, we'll throw a value on it and lend  up to 65% of that value.  Our thought-process is that  a business that paid rent in a similar amount to our debt service will be able to handle the load.  If we're incorrect, we have a property that is attractive to other businesses at a below market cost-basis.

Flippers or Foreclosure Buyers:  We generally dislike flippers because they'll be wrong one day and we don't want to be the lender on that one wrong transaction. However, we have found some borrowers with a really good eye for "the deal. "  Their experience in undervalued transactions is what gives them credibility with us.  They appreciate our ability to make a quick loan decision and fund quickly.  Sometimes, a low price can be negotiated by a buyer with the promise of a 7-day closing. 

Broken Construction:  Banks and traditional mortgage lenders HATE broken contsruction; we understand it.  Traditional companies believe that an owner-builder who runs out of money can't manage a construction budget.  We understand that the past two years have been difficult with higher materials' costs and labor costs.  We'll look at the end result (market price of the finished project) , control the funds needed to finish the project (via the draw/inspection method of disbursing funds), and lend the money.

Just a few ideas for hard money brokers on how to find potential borrowers for your niche loan product.  

Read: So You Want to Be a California Hard Money Broker? 

          Hard Money Equals Hard Headaches   for an originator's learning experience 

          What is Hard Money Lending?

          You're Building and You Ran Out of Money?

          What's Your Rate?

          I Guess I'm a Predatory Lender

          Did You Receive a Notice of Default?

How is borrowing money like  buying a cell phone?

I'm going to share a funny personal story with you.  I just bought a cell phone the other day. Now,  read on because it has a LOT to do with how to get good mortgage terms.

This was a big thing for me because I bought a real bad-ass cell phone.  It's the LG CU500, the first HSDPA compatible UMTS handset for the US, and probably the first to be offered by Cingular.

Now I have no idea what I just cut and pasted about my cell phone but I know the thing cooks.  The interesting part is I am a long-time cell phone user.  I go back to the days when you threatened to leave your carrier and they gave you a free phone.  PAYING for the handset was a never an option for me.  I've been a ATT Wireless (now Cingular) customer for years so I logged on to the website and started my search.  I found 2-3 phones I like,and marched into the Cingular store , prepared to do battle.  Guess what?  It costs about 50-$100 dollars more to buy the phone in the store than online.  And that's perfectly fine with me because it is definitely worth it.

The moral of the story is this: We don't buy products, We buy solutions.  Solutions are best provided by people and not a URL. 

So how does this relate to the online versus in-person mortgage origination? 

GET THE REST OF THIS STORY AT www.MortgageRatesReport.com 

Did you know that over a five year period of time, the one year ARM has always outperformed a 30-year fixed rate loan?   That statistic has held true for over 40 years. What that means is that your average interest cost for a five year period was less with a one year ARM, than with a traditional 30 year fixed-rate loan..  Let's look at the last five years and compare a LIBOR plus a 2.25% margin ARM to a 30 year fixed rate loan:

I talk a lot about trends in housing.  One of the ways to make money in any real estate market is to buy correctly.  How can you spot the next Aspen or Scottsdale?  Here are the six stages to watch:

1- If looking for the next hot ex-urb, look for a small town that is surrounded by natural beauty.  An old mining town in Southeastern Arizona, a former mill town on the river in Massachusetts, or an unnoticed beach town on the Gulf of Mexico.  This is the period where the real cowboys invest.  Their plan is to buy land and promote it.  There is a bar and gas station in town.   There is no chamber of commerce.  Your friends will refer to the town as "bucolic".

2- Look for the artists and tradespeople.  If you see galleries and studios replacing tattoo parlors you have a good chance of making a killing in this market.  Artists like physical beauty and a sense of community. More importantly, budding artisans are VERY frugal with the dollar.  While I can't prove it with data, I just know these left-brained thinkers have a "sixth sense" about seeing the big picture.  The chamber of commerce is made up of the artists and the failing gas station owner, meeting at Joe's Tap Room once a month. Your friends will refer to the town as "funky" at this point.

3- Independent coffee houses and resale shops  follow the artists and it benefits everyone.  Customers need a place to eat and drink while shopping so these little businesses come in.  They take over the abandoned gas station and call their shops names like "The Shell House"  or "X-ed ON".  There is still room for upside here.  The Chamber of Commerce is hosted by the newly converted bed and breakfast in town and the mayor and police chief have joined. Your friends will call this village "quaint".

READ THE FINAL THREE STAGES AT www.MortgageRatesReport.com