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Sub-Prime Vs. Hard Equity (private Money)

As a Licensed Full-Time Mortgage Professional living and working in Palm Beach Gardens, Florida I have build up a quality reputation for Jumbo Mortgages in the Alt "A" product line as well as Sub-Prime Market. With all the new changes in the industry (Some for the Good) I have been looking at the difference between the Sub-Prime Market and the Hard Equity (Private Money) market. It seems now it is closer than ever before.

Sub-Prime Hard Equity

LTV up to 90 With decent FICO and Proof of Income LTV up to 70 Credit FICO Not Required No Income Required

Usually Points Not Required Points almost always are required

Pre-Payment is Standard Pre-Payment can Vary from Each Lender and maybe optional

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Now for the Rates. This is where it really becomes closer than ever.

In the Sub-Prime Market rates begin in the 9% range for Full Documentation and can go up from there depending on Documentation (I have seen as high as 11.875 for a Stated Loan)

Hard-Equity (Private Money) Rates start at 10.99% and can go up from there depending on Points and if you do not want a pre-payment penality.

Remember if you chose to go stated on a loan (No Proof of Income just Stating your Income) most lenders will require you to sign a a 4506 Form. (IRS FORM) If chosing a Hard-Equity Lender you will not be required to sign any of those forms because you are not stating any income. (NO-DOC) Your Income is left blank.

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How Do You Choose Your Mortgage Profesional

  1. See if Your Mortgage Professional is Licensed to do FHA loans (Don't assume you won't qualify)
  2. If you choose a Direct Lender (Bank of America, Suntrust, National City, etc....) Do they offer these products? (Most of these lenders do not)
  3. Does your Mortgage Professional have the ability to Broker your file to another lender if you don't qualify for his/her products?
  4. Is the person you are speaking with Licensed?
  5. How long have they been doing these types of Loans? If your Mortgage Professional only does Fannie Mae products they might not be familiar with these loans
  6. If your Mortgage Professional Full-Time or Part-Time? To do these type of loans take a lot more time and if the person is not FULL-TIME you might not close in the time frame you are looking for.
  7. Finally go with your gut. If you have mixed bags maybe your stomach is trying to tell you something.

For more information: Mortgage Advice in South Florida

Posted Monday Aug 20
( 08/20/07 09:21AM ) — David A. Podgursky, MBA The Mortgage Go To Guy!

not with you on the FHA comment... there are fannie mae products that can do the same without the special appraisal requirements which can hamper a buyer and seller

the big issue right now with direct lenders is that they have fewer products, limited range on borrower unique needs and if they drop a program they're dead in the water!  if they drop entirely, the borrower is dead in the water!  a broker will be able to double submit or shift gears quickly to find a 2nd or 3rd lender to do the loan with relatively low effort.

hard equity is definitely becoming more competitive with subprime.  Subprime is still alive but the investors are looking for a better return given the current market...

I expect it to return back to where it was in relation to conforming in the next 6-8 months as the market starts to normalize again in preparation for the presidential election.

( 08/20/07 09:30AM ) — John Klassen

Hard Equity is a solution. It is one that I am more apt to use for investment proeperties or builders. My reason is the potential liability you incur in doing this. Legislation has shifted over the past few years to strongly protect homeowners. Putting a homeowner into a hard equity loan couyld be career suicide right now.

Good points on the the rest of the comparision.

Thanks

( 08/20/07 09:37AM ) — Matthew J Blum - MyFavoriteMortgage.net

David, True Fannie Me has some good products but it seems everyone now only knows about FHA.  I believe guidelines will loosen up in about 6-12 months

John, Placing someone with the right hard equity lender is the key.  I do not believe it would be a career suicide. I have done these loans in the past and have not had one foreclose on.  I have a select few Private money people that I use that are quite good.

 

( 08/20/07 03:17PM ) — Nestor & Katerina Gasset Realtors® Wellington Florida Luxury Homes

Great google juice going on here!  I like hard equity, it has it's purpose. Great information about hard equity loans and subprime lending. Good you wrote this post. Katerina

( 08/20/07 03:32PM ) — Matthew J Blum - MyFavoriteMortgage.net

Katerina,  Thank you.  It is wild to see how close they are today. I believe more people will be forced to go to hard equity.  The rates are almost the same now.

( 08/20/07 11:14PM ) — Kim Murphy | Mortgage Loans in DuPage, Kane, Cook, Lake, Will Counties Illinois

Matt - Excellent information.  The 4506 is good information to know for stated borrowers, and choosing the right Mortgage Professional is even more important today than ever before.

( 08/21/07 08:04AM ) — Matthew J Blum - MyFavoriteMortgage.net

Kim,  So many people don' t realize about those IRS forms.  Then act surprised.  Thank you for your comment

( 08/21/07 05:27PM ) — Thomas Weiss

Matt, 

Great Post, I think this is important in todays market to know the difference between these two..

 

Tom Weiss

( 08/21/07 06:22PM ) — Matthew J Blum - MyFavoriteMortgage.net

Tom, Thank you.  I tell you it is very close in pricing right now.

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