All Forum Posts by: Corey Dutton

Because of the ease, speed, and the flexibility of private money loans over traditional bank-type loans, many investors prefer them when acquiring real estate. Because a real estate purchase is typically wrought with obstacles to overcome prior to closing, the peace of mind of knowing private capital is readily available is worth its weight in gold for some investors. And because banks are more rigid in their lending decisions, underwriting standards, and overall loan terms, this lack of flexibility is another key factor that steers sophisticated real estate investors in the direction of private money loans.

Although private capital tends to carry a higher cost factor over bank financing, many investors are more concerned with completing an acquisition successfully, particularly when a lot of due diligence and earnest money is at stake! If you’ve never used private money loans to finance your real estate acquisitions these can offer you competitive advantage when used correctly.

Posted by Corey Curwick Dutton

A recent poll, as seen on Bank Innovation, revealed that the banking customers 35-year old and younger are inclined to use non-bank services like Square or PayPal over traditional banking services. Square is a payment processor for small businesses with a flagship product that is essentially a credit card reader that attaches to smart devices. The company has decided to branch out into ‘Square Capital,’ where it will begin to extend lines of credit to small businesses. The new offshoot of this non-banking, provider of banking services into a realm of financial services that have traditionally been services only offered by banks and credit unions represents a huge threat to U.S. banking institutions. According to a recent article in the Financial Times, Square Capital has been in the pilot phase for the past year, but the offshoot has made real loans to some of its merchants during the pilot phase. Some examples of Square merchants that have taken advantage of these pilot loans under Square Capital include a hair salon and a comic bookstore.

(Source: Financial Times: http://www.ft.com/intl/cms/s/0/fa3a3350-e5fe-11e3-a7f5-00144feabdc0.html?siteedition=intl#axzz337qA5uuS )

Posted by Corey Curwick Dutton

From a recent poll of customer banking preferences, as seen on Bank Innovation, the younger generation is growing extremely comfortable with non-bank, banking services. So comfortable in fact, that 77% of the poll’s respondents 34 years and under would consider banking with a non-bank banking service such as Square or PayPal over using a traditional bank.

This poll represents a huge threat to U.S. banking institutions that are scrambling to keep up with the demand for online and mobile banking solutions, while also battling to protect the privacy of their customer information. This represents an ongoing battle for U.S. banking giants who also wrestle with the probability that branches will become altogether obsolete sometime in the short to long term. This dramatic shift of the big banks from their old school business model to a digital-based business model bears the following question. How will the large U.S. banking institutions compete with non-bank, banking services like Square and PayPal? How can they differentiate themselves and appeal to a new, younger generation of consumers?

(Source: BankInnovation.com: http://www.bankinnovation.net/2014/05/customers-want-more-than-banks-are-giving/)

Posted by Corey Curwick Dutton

According to a recent article from the Financial Times, non-bank lenders such as insurance companies, hedge funds, debt funds, and the like are pouring money into commercial loans. Almost 25% of new commercial loan originations in the UK in 2013 came from non-bank lenders, and about 50% of that number came from insurance companies. This is largely attributed to low interest rates, which have prompted investors to look for higher yields. Bill Maxted, a researcher at De Montfort University said, “There are more lenders in the market and there is a real competition, with interest rates margins falling and loan to value ratios rising, there are some quite aggressive terms being offering by debt funds in particular.”

(Source: Financial Times: http://www.ft.com/intl/cms/s/0/2d48ab1e-dcfe-11e3-b73c-00144feabdc0.html?siteedition=intl#axzz32vRmZn00)

Posted by Corey Curwick Dutton

Shareholders of Deutsche Bank protested at its annual meeting last Friday over its announcement of a new capital raise of 8 billion Euros. Shareholders are questioning the timing of this capital raise, since the bank’s share price has slid by 25% since January 2014. Union Investment, a top shareholder in the bank, was among the protesters at the annual meeting on Friday, and was quoted as saying, “The share price performance is a tragedy, a lot of investor confidence has been lost; the capital raisings do not make it better.”

Top management has also come under extreme fire for this as well for the bank’s high litigation costs, referring to 5 billion Euros paid out over the last 5 years in settlements and litigation-related costs. Mr. Jain, the bank’s CEO, commented, “You should trust us because the rebuilding of Deutsche Bank is working, because we are strengthening capital and reducing risk.”

(Source: Financial Times: http://www.ft.com/intl/cms/s/0/87ded282-e191-11e3-9999-00144feabdc0.html#axzz32SSph4Av)

Posted by Corey Curwick Dutton

Fannie Mae and Freddie Mac own or guarantee approximately 60% of all of the mortgages in the U.S.A. According to a recent article in MPAMag.com, Fannie and Freddie are pulling in record profits. But the head of the Federal Housing Finance Agency, Mel Watt, warns that the “money train won’t last forever.”

“The record level of profits that Fannie and Freddie have had over the last couple of years certainly are not sustainable, because they result in large part from large settlements of litigation,” Watt said.

Congress is working on passing new law that that would replace Fannie and Freddie with private investor capital. Many mortgage industry experts oppose this measure, as they believe will be detrimental to housing finance as a whole.

(Source: MPAMag.com: http://www.mpamag.com/mortgage/watt-private-sector-unready-to-replace-fannie-and-freddie-18271.aspx )

Posted by Corey Curwick Dutton

Are you thinking of fixing up a property this year to sell? You may need a rehab loan. So, what options are available for financing for those seeking rehab loans? The 3 most popular options for rehab loans are:

1.FHA 203k Rehab Loan

2.Home Equity Line of Credit or HELOC

3.Hard Money Rehab Loan

Unless you're a non-profit or you are looking to fix up the home you live in, you won't be eligible for an FHA 203k rehab loan. Real estate investors need not apply! And if you think you're getting a low cost loan by going FHA, think again. There's 0.55% ongoing for insurance, loan fees or points range from 2.75% to 4.75%, definitely count on an appraisal fee, ongoing inspection fees, and other junk fees.

HELOCs aren't available as readily as they used to be, in fact, most banks no longer offer equity lines of credit anymore. And for those banks that do offer HELOCs, most won't lend on investment properties. So unless you live in the property, forget about getting a HELOC if you're seeking a rehab loan for an investment property.

This leaves me with the last option: a hard money rehab loan. This option is by far the fastest and easiest loan to qualify for. Although the cost of a hard money rehab loan may be higher than a FHA 203k rehab loan or a HELOC, if you've got a need for speed, a hard money rehab loan is the only way to go. If you've never obtained a hard money rehab loan before, the requirements are less stringent than traditional loans. And if you do need a rehab loan in a hurry, take a minute to read a blog post we wrote recently on this topic called, 6 Items You Need to Close Your Rehab Loan Fast.

Posted by Corey Curwick Dutton

There are 4 well known scams in hard money lending that are throwing off both borrowers and brokers. These scams are related to trying to obtain a hard money loan and getting the run around. Trying to move quickly on a loan? Read this before engaging any hard money lenders or brokers to save yourself both time and money.

1. Upfront Fee Scam: This is the most common scam in hard money lending. It seems like everyday there’s a new scam artist with a fake website, fake address, claiming to be a hard money lender. These scammers will never provide a loan but are just in the business of collecting application fees, legal fees, or however their upfront fees are disguised.

2. Bait & Switch: These hard money lenders will give you loan terms but once you’ve eliminated all of your options, they will change the terms so you have no other choice than to accept. Some lenders won’t change the terms but they will drastically lower the loan amount and then require you to bring in more money or cross with other properties you own.

3. Bait & Ditch: These are real hard money lenders but they tend to get busy and overloaded. They will take an application fee or some other upfront fee and then forget about you. Weeks, sometimes months will go by and you won’t hear a word from them. Then all of a sudden they decide to decline your loan after you’ve wasted weeks and months, time, money, etc.

4. Too Good to Be True: These hard money lenders promise the world to get you on the hook. Once you eliminate your options you soon discover that the lenders terms aren’t much better than the other lenders who gave you a quote before. Junk fees can add up to be sometimes 1-2% of the loan amount. Sometimes when it seems too good to be true, it usually is. Always ask about “junk fees” when you are getting a quote for loan cost from a hard money lender.

Make sure you do your research on your hard money lender before you get too far down the path. Otherwise you risk both time and money wasted in the pursuit of a loan that may never happen or may not be what you bargained for in the beginning. Read more on this topic on our blog here: http://privatemoneyutah.com/top-4-scams-in-hard-money/

Posted by Corey Curwick Dutton

Thought to be “dead in the water,” the Johnson-Crapo bill lost some steam last week when six Democratic Senators removed their support. The proposed bill would replace Fannie Mae and Freddie Mac with a new government entity that would act as a new federal regulator for the mortgage industry and would administer a fund to cover losses on mortgage backed securities. Supporters of the bill say it would put more of the risk on private capital. However, critics of the Bill say it is bad for housing and for the recovery of the economy as a whole. According to Norbert J. Michel, PhD, a Research Fellow in Financial Regulations at the Thomas A. Roe Institute for Economic Policy Studies, the proposed bill will, “Allow private investors to price their own risk knowing that their losses are capped, thus leading to more risk taking. Second, Section 305 of Johnson–Crapo allows the FMIC to waive the risk-sharing provision in the event of a financial crisis (up to three times in any three-year period). In other words, 90 percent of private investors’ losses will be covered unless there is a national crisis, in which case they would lose nothing.[1] As the 2008 crisis made clear, these are the kinds of government guarantees that lead to more leverage in the economy, thus magnifying underlying economic risks.”

Tim Johnson announced that the committee will reconvene this Thursday to continue looking at the bill. Perhaps the Johnson-Crapo bill isn’t yet “dead in the water” as many say it is? What is your opinion on this controversial bill?

(Sources: MPAMag.com: http://www.mpamag.com/mortgage/johnsoncrapo-bill-thought-dead-is-back-on-agenda-18194.aspxhttp://www.mpamag.com/mortgage/johnsoncrapo-bill-thought-dead-is-back-on-agenda-18194.aspx

Heritage.org: http://www.heritage.org/research/reports/2014/03/johnsoncrapo-housing-finance-reform-misguided)

Posted by Corey Curwick Dutton

Lloyds Bank recently announced one of many loan programs aimed at boosting the housing market in the UK. The loan products allow for a 5% down payment and have a 2-year fixed rate of 5.19%. According to a Propertywire.com article, this is just one of a range of measures the UK is taking in an attempt to boost the housing market, and thus the UK economy as a whole.

But is a low down payment requirement and a low “teaser rate” just another “scheme” to temporarily increase sales while putting homebuyers into unsustainable mortgages? A 2 year fixed rate mortgage being offered by Lloyds is just an adjustable rate mortgage, the same type of loan which led to the demise of the mortgage market in the U.S. back in 2008. This is a lesson we learned all too well in past years and hopefully history won’t repeat itself again. Only time will tell how these ‘Help to Buy’ mortgages play out in the UK. What is your opinion on this topic? Is it too soon for banks in the UK to be playing this game all over again?

(Source: Propertywire.com: http://www.propertywire.com/news/finance-update/help-buy-scheme-products.html)

Posted by Corey Curwick Dutton