Borrower distress opens up opportunities for personal mortgage investment – Orange County Register

What Are the Tastiest Recipes for Real Estate Investing?

You can buy and keep. Watch your property increase in value. And then sell.

You can fix and flip and make money as prices go up.

Buying and accumulating rentals can bring you nice cash flow.

When you invest in REITS or real estate investment trusts, you can invest in real estate as you would in stocks.

And, as a licensee, you can certainly earn property sales compensation.

But real estate investments have gotten a lot more complicated since the COVID-19 outbreak, along with eviction and foreclosure moratoriums.

Here’s another option: invest in hard cash or personal mortgages, become bondholders in a trust of trust, the California term for a mortgage.

New, challenging, and sometimes unreasonable Covid-19 insurance requirements are preventing many borrowers from getting their purchases and refinancing through institutional sources (Fannie, Freddie, banks, and the like). Forget about the lowest interest rates in mortgage history this week. You cannot get tariffs.

The Wall Street Journal recently reported that federal regulators are urging banks to tighten standards on mortgages based on borrowers’ assets, or so-called asset depletion loans. In technical jargon, these are called non-QM or non-qualified mortgages.

And mortgage defaults are increasing. Black Knight July numbers show a 450% increase in mortgage borrowers with at least 90 days late. We’re talking to 2.25 million people in great trouble.

With real estate growth skyrocketing, many high-equity homeowners flashing red would like to pay a higher mortgage rate or take a second mortgage to buy some time to resolve their liquidity crisis problems. For many homeowners in need, a hard cash loan can be a better alternative to selling or losing their property through foreclosure.

You can borrow your own money directly when you find the right homeowner in need. Consult a mortgage loan attorney before getting involved.

Or you can turn to private parties or hard money mortgage lenders. Usually they will find opportunities for you to invest. They usually receive compensation for completing the transaction (points billed to the mortgage debtor) and they usually charge a monthly mortgage service fee.

The three ways to invest in personal mortgages are whole mortgages, partial mortgages, and mortgage funds, according to Jim Perry, president of the Aliso Viejo-based Alliance Portfolio.

A full loan could be an investor who first brings up $ 500,000 against a $ 1 million property. Partial ownership could involve five different investors, each investing $ 100,000. Or you can invest any amount in a mortgage fund.

According to Don Nikols, co-manager of Newport Beach-based Nikols Mortgage Fund LLC, you must be an accredited investor to participate in a mortgage fund. Accreditation requires a net worth of at least $ 1 million with no residency or an annual income of at least $ 200,000 if you are single or $ 300,000 if you are married.

Perry said mortgage funds could give you a 7-8% return. A full or partial mortgage can get you 7-9%, and a second lien can get you 10-12%.

The average personal loan is paid off in 23 to 28 months.

The maximum loan-to-value ratio for Alliance Portfolio is 65%. In other words, the borrower would have at least 35% equity after the new lien was taken on the property.

If the borrower is charged 7.99%, the investor receives 7% and the Porfolio Alliance the rest as a service fee.

The Nikols Fund invests primarily in construction, bridging or swing loans and refurbishment finance. The average investor return from 2014 to 2019 was 6.6%.

Investors in full or partial loans must also pay the legal costs of prosecuting a defaulting borrower. A fund is addressing these issues on behalf of its investors, Nikols said.

Do your homework. Check references before investing. Check your lender’s license information with the California Department of Real Estate. The DRE has an excellent online publication entitled: “Trust Deed Investments: What You Should Know!”

What are common complaints to the DRE?

“Complaints range from investors who are not getting the expected returns on their investments to borrowers who are not getting the credit they want,” said Shelly Wilson, DRE deputy commissioner.

Private money mortgages may bring better returns, but Perry warns, “Don’t be greedy.”

Before you jump in, think about how to get your money back from a borrower without going through a foreclosure.

Freddie Mac rated news: The 30-year fixed rate averaged 2.86%, a drop of 7 basis points to the ninth record low this year. The 15-year fixed rate averaged 2.37%, 5 basis points less than last week and fell to a record low for the fifth time this year.

The Mortgage Bankers Association reported a 2.9% increase in loan application volume from a week earlier.

Bottom line: For example, suppose a borrower receives the average 30 year fixed rate on a compliant loan of $ 510,400, last year’s payment was $ 195 more than this week’s payment of $ 2,114.

What I see: Well-qualified borrowers locally can obtain the following fixed-rate mortgages at 1-point costs: a 30-year FHA at 2.25%, a 15-year conventional at 2.125%, a 30-year conventional at 2.625%, a 30-year FHA high balance at 2.625%, a conventional high balance ($ 510,401 to $ 765,600) at 2.69%, and a 30-year jumbo fixed rate at 3%.

Note: The 30 year FHA is limited to loans of $ 442,750 in the Inland Empire.

Eyecatcher loan of the week: A 15-year conventional fixed-rate mortgage with a high balance at 2.25% with 1 point.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or [email protected] His website is www.mortgagegrader.com.

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