Sub Prime Lending

Sub-Prime Lending Markets

Forget all the negative press about "predatory practices" that have put some of the major sub-prime lenders out of business lately - there is much more to the picture! A sub-prime lender is one who lends money to high-risk individuals.

The biggest players, including some large banks and insurance companies, are losing tremendous sums of money at the sub-prime game.

Over the past several months, most major sub-prime lending companies, including the biggest and oldest in the business, experienced some difficulty in one way or another. Many have either struggled to keep their doors open or have actually decided to file for bankruptcy.

Those still standing have had their investment ratings downgraded due to the industry's legal and political risks, not to mention the financial realities of doling out money to high risk borrowers, secured only by high risk, high loan-to-low-equity-value properties.

The strategy of aggressively creating loans and then selling them off in pools of securities, known as "securitization", has given fuel to this multi-billion dollar industry, at the expense of profits.

Equity Is Still King

Spending money to make money might make sense in the right business platform - but giving it away tends to spill red ink all over the place.

Consolidation in sub-prime lending markets will likely make equity king again - forcing deal-makers to return to "practical solutions" for real estate financing options, and not always just for sub-prime borrowers.

How This Affects You

Okay, it’s time to think of new ways to help your clients. Creative solutions for everyone. For many of you it will be a whole new educational process. Fortunately, you don't have to look far - I am a quick phone call away. And the time to get started is sooner rather than later.

Remember, every deal is different and I can always give you some basics so you'll have a complete understanding, and the ammunition, for counseling your clients on closing deals in a less fluid environment. For example, did you know that table funding (otherwise known as simultaneous closings) has become one of the hottest techniques in real estate transactions over the past eight years - making up an estimated 20% of all private note sales?

Several issues ago, I explained how Sellers needing cash could sell a newly created note simultaneously with the sale of their property.

Installment Sale

Additionally, in the last issue, I pointed out that most Sellers assume that they need all the cash at closing. However as I explained, an installment sale can often be a better alternative, both from a tax and a reinvestment standpoint. Also in the last issue, I illustrated how a client holding existing paper can use that paper as collateral to secure more assets, while continuing to enjoy higher returns and more tax benefits.

The Best Strategy

If you or your clients are disposing of real estate assets or need to liquidate existing notes, feel free to give me a call ahead of time. I am happy to help you determine which strategy might work best. What I am proposing is that you use one of the many alternative-financing techniques, providing a broad range of options so your clients can complete transactions in a manner that is acceptable to them.

More Options

Here are a handful of options you can choose from:

1. Private seller carryback purchase mortgages;

2. Table funding;

3. Trading equities;

4. Exchanging;

5. Substituting collateral;

6. Bartering;

7. Using land contracts;

8. Converting existing notes to cash; and

9. Structuring lease options.

All of these deal-making strategies have been used for decades and are valid, viable, and valuable techniques.

Problem Solving

Professionals such as Realtors, attorneys, CPAs, and mortgage brokers have used these techniques reliably for years - knowing that they offer practical solutions for their clients.

HARD CASH NOTE BUYERS

Have you created a seller financed note? Let us buy it from you !