Posted by Edd Lay on September 19, 2001 at 08:03:55:
David,
Here’s what happened to the note business you knew and loved. Metropolitan bought all kinds of deals, including partials. A large majority of the rehabber, non-owner, or small commercial defaulted and almost put them out of business. They are still recovering. So then The Associates, seeing what they thought was an opportunity stepped in to fill the hole. And the same thing happened to them but they got to add “partials” to their default list because of really poor underwriting. So now note buyers, who now must either have their own money to by and hold in their own portfolio (and there are only a us and a few others who can do that), or sell off as brokers to a larger buyer have to follow different guidelines. I am required to follow certain requirements because we are a bank subsidiary. Those who broker to larger buyers have to follow the larger buyer’s requirements. Bottom line is that the note business has changed and it isn’t going back to the way it was.
It’s always been a niche business, strictly a place for those who are can’t meet the mortgage company’s seasoning, employment or other doc requirements. Not a place to dump your deadbeats off on.
Citibank is too large to try and reason with and the only reason they bought The Associates in the first place was for the credit card division. The Associates Mortgage divisions has brought them a large number of lawsuits (720 at last count) about 4000 + defaults and a federal investigation. If they do sell off those bad notes they will do it through C-Bass or some other large portfolio sub-servicer.
My advice is to adapt… if your buyers are primarily sub-550 credit scores then do Contract 4 Deed, Subject To and L/O where financing is not the issue until the markets go in another direction. Note buyers aren’t going to be touching those anytime soon because of the default risk history of Metropolitan and Associates.
“If you don’t like the game change the rules. If you don’t like the rules find another game”
There are plenty of deals out there. I don’t think this bump is going to hold you personally back anyway.
Edd Lay
Loan Acquisitions
Pinnacle Capital Resources
Hard Money Lenders No Longer Asset Based… ?? - Posted by David Alexander
Posted by David Alexander on September 18, 2001 at 16:19:45:
I told a friend about Ready mortgage out of Garland…
And Statewide Capital out of Houston…
Although I have never personally used them, I have been always told they were hard money lenders… Asset based, that is.
He just called them and was told they were all Fico driven… minimum ficos to get a loan are in the 560-580 range.
This is rather disheartening in my opinion… as I’m thinking that No Matter if the interest rates are going down , the money is still getting tighter.
I recently had a portfolio up for sale and couldn’t even get a response on partials on notes… average seasoning just under a year… but it seems the Ficos of my payors being low, No One wanted to touch them even at low LTV’s… although they pay me very well and all put down near 10%.
What is it when we know the credit scoring system is screwed and we are still looking for 600 plus Fico’s
Dont know what it means when money get this tights… but I’m gearing up to BUY MORE houses…
Posted by Jim FL on September 18, 2001 at 18:50:56:
David,
Very interesting.
So you are gearing up to buy more houses?
Why?
I think I know, but for those here who may not be following you, please elaborate.
I wonder why these “Hard money” lenders are tightening up the strings?
Do they know something we don’t?
I’d think that a 50% LTV loan would be an easy one to get, but not with Fico driven requirements.
Might be a good time to seek out some private investors and start up an asset based lending company?
Posted by David Alexander on September 18, 2001 at 19:24:07:
Only Assumming of course since I’ve ahvent ben in this game long enough to know.
But, if money tightens then I wouldnt think that will create even longer selling times… which will create better deals for cash and more flexible sellers.
We have to be prepared to hold a little a longer though.
Posted by Edd Lay on September 18, 2001 at 20:28:46:
David,
Since the demise of The Associates, the reality of risk has finally brought into play realistic underwriting for both hard money lenders and us normal notebuyers. It’s not about how much the buyer put down, or what your LTV was, or even if they are showing that they are making their payments to you. It’s about all of the people they didn’t pay in the past that got them that low credit rating and that is what makes it too risky to buy those notes. We don’t want to own these houses, we just want a good return on our money. And buyers who have demonstrated in the past that they don’t pay anyone, and who receive lower credit ratings as a result of that, have a higher risk of default, a lot higher, so we wind up with the houses, which we don’t want. In the long run they just don’t make the payments. Now I know that The Associates spoiled a lot of brokers, flippers and rehabbers by purchasing 525 credit score paper at 90%LTV and that they paid way too much on top of that, because I am still seeing a lot of it that no one will buy. But why do you think they are gone? Because most of what they bought defaulted! Down the road, note buyers may loosen up if the default rates go down. But we use the same default models as the wholesale lenders and banks use for their mortgages, so with defaults rising don’t look for things to get easier on folks with poor credit. If a lender won’t give these buyers a loan why should notebuyers be expected to buy the note? It does open up an awful lot of opportunity for those of you who can adapt and do L/O or Subject To. Just my 2 cents worth.
Edd Lay
Loan Acquisitions
Pinnacle Capital Resources
Posted by David Alexander on September 18, 2001 at 20:46:41:
And that is exactly my point…
Notebuyers came in and took more risk than normal mortgage companies… They would based on seasoning, downpayments, Ltv’s etc., not on just the credit scores… at the very worst you could sell a partial in the 70% and keep the tails… seems no one wants to do that either.
Now that the notebuyers have adopted the same criteria as mortgage lenders… I don’t see where they fill a special need. There is something to be said when someone is willing to sell good paper and cant find a buyer…
Reality is… I am looking for more sources to borrow against it, which is what I should have been doing in the first place… so in the end it was a good thing…
I just think it will cause another shakeout… of some sort…
But that’s the game, you change when the rules do.
David Alexander
P.S. I buy alot of houses subject to. I feel sorry for Citi Bank… they have all that paper going bad… and they want take discounts on it to get rid of it… Guess they’ll learn the hard way.