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By Susan Lassiter-Lyons
Author of Mortgage Secrets for Real Estate Investors and Creator of Finance It Right, Portfolio Loan Blueprint and The Investor Insights
What the hell is happening?
This is the question I ask myself as I watch the debacle which is the complete collapse of our economy unfold before my very eyes.
Am I overreacting?
Let’s examine the facts and you can decide for yourself.
And because we’re all real estate investors we are ONLY going to touch on the facts that have to do with us.
FACT: 286 Lenders Have Imploded Since 2006
The Mortgage Lender Implode-O-Meter is an online site that tracks mortgage lenders that have gone out of business since 2006. Here are a few of the recent Imploded Lenders™:
286. Hometown Commercial Capital 285. Mid Atlantic Capital LLC 284. Kemper Mortgage, Inc. 283. Liberty Mortgage Funding Co. 282. Freddie Mac 281. Fannie Mae
280. Pacific Community Mortgage, Inc. - Gold Reverse, Inc. 279. Homecomings Financial, LLC 278. Thornburg Mortgage 277. CSB Mortgage 276. Carteret Mortgage Corporation 275. Accredited Home Lenders, Lone Star Funds - Wholesale 274. Western Residential Mortgage 273. Liberty Home Lending - Wholesale 272. Equipoint Financial Network, Inc. 271. Ideal Mortgage Bankers, Ltd. - Wholesale 270. Silver State Bank - Wholesale 269. Irwin Union Bank & Trust Co. - Wholesale 268. SunTrust Bank Equity Wholesale 267. Wachovia Mortgage, FSB - Wholesale 266. Lehman Brothers SBF 265. IndyMac Bancorp
I’ve only given you a snapshot of the list and you can see I bolded a few of the biggies.
I never thought I would ever live to see Fannie Mae and Freddie Mac, the two largest mortgage lenders in the US go belly up.
You can also see that some of the banks say “wholesale” by their name. This means that the banks are still in business but have eliminated their “wholesale” channel of business. That’s the channel that mortgage brokers do business with banks through. No wholesale means they are no longer accepting business from brokers.
I predicted a few years ago that banks would eliminate their wholesale channels to force the consumers (YOU) to do business with them directly through their retail channel. That means higher rates for YOU. And it seems to be coming true.
FACT: Fannie and Freddie are now in Federal Conservatorship
As you saw above, the two biggest lenders in our nation failed. They were taken over by the Feds to “save” the economy from disaster.
It didn’t work.
AND they instituted some new rules in the process.
These rules are a SLAP in the face to every real estate investor in the country.
Not only DON’T they invite us real estate investors to participate in the economic recovery, they PUNISH us for being real estate investors in the first place.
FACT: The New Rules of Conventional Lending Have Eliminated Stated Income Loans
Many in the press have referred to stated income loans as “liar loans” claiming they are responsible for a great percentage of the foreclosures that are currently plaguing our economy.
Stated income loans were set up to allow self-employed borrowers to qualify for loans without having to rely on their tax returns to document their income.
Here’s the thing that no one talks about that I find fascinating – the tax code is set up in such a way to encourage small business owners to aggressively write off expenses thereby drastically reducing their adjusted gross income.
BUT if you don’t have a high enough AGI, you can’t qualify for a mortgage loan! It doesn’t make any sense to me.
The real mistake that was made in my opinion was when lenders decided to offer stated income loans to someone who was NOT self-employed. That WAS a liar loan and it ruined it for those of us that are self-employed.
Under the new rules of fully documented loans only, I can’t even qualify to refinance my rentals because I don’t show enough income. It makes no sense to encourage us to get aggressive and write off everything and then punish us for it.
FACT: The New Rules of Conventional Lending Have Reduced the Maximum Number of Financed Properties You are Allowed to Have to FOUR (4) Including Your Primary Residence
This is by far the craziest of the new rules. In my opinion, you should be able to have as many financed properties as you can qualify for factoring the debt and the income in to your debt to income ratio.
The government telling professional real estate investors that the maximum number of income producing properties they can own is three is like the government telling a cab company that the max number of cabs they can have on the street is three.
Last time I checked our economy was based on capitalism. This rule sounds more like a rule you’d find in a communist or socialist economy. It makes no sense.
FACT: The New Rules of Conventional Lending Have Eliminated Your Ability to Get Cash Out of Your Properties for a Minimum of 6 Months – Even if You Paid Cash
Over the course of the last few months I can’t even count the number of calls I’ve gotten from investors who used to buy properties with cash (or a line of credit) fix them up and then immediately refinance them pulling their cash back out and move on to the next deal.
It worked well until Fannie and Freddie announced that you have to hold a property for a minimum of 6 months before you can do a cash out refinance. So now all these investors have their cash tied up in properties for 6 months. That puts a serious slow down in your buying plan.
FACT: The New Rules of Conventional Lending Have Eliminated Your Ability to Refinance a Property You Hold in Your LLC
For years, every real estate guru in the world has preached that we need to hold our properties in an LLC for asset protection purposes. Well, now Fannie and Freddie are saying that we cannot refinance a property held in an LLC for any reason unless you quit claim it back into your personal name and let it “season” for 6 months.
It’s not like the loans are in the name of the LLC without any personal guarantee and we could just walk away. These loans are in our personal names. Most of us just quit claimed the properties after closing into our LLC’s.
Again… makes no sense.
So, has the government succeeded in their assault on us real estate investors? Have they succeeded in shutting us out of this bargain-basement real estate market?
Is This the Death of Real Estate Investing?
I don’t know about you but I am not one to surrender. When someone tells me something can’t be done, that’s precisely the reason why I make it my mission to prove to them that it CAN be done. And this time is no different.
So, let’s see… if we can’t get financing for our investments from conventional lenders who can we get it from?
Two options – sellers and portfolio lenders.
First, seller financing is making a big comeback. Remember, the creative financing strategies and “no money down strategies” that the gurus have been touting for years? We got away from all that because the loans were so cheap
and easy to come by. But now that is over and it’s time to revisit the seller financing options.
As you know, I have a blog and a real estate investing coaching program called The Investor Insights. Each month I host a live, 90-minute, FREE teleclass about topics important to us real estate investors. The November Investor Insights teleclass coming up on November 12th is called:
Alternative Financing Strategies: The Skinny on Wrap Mortgages, Shared Appreciation Mortgages, Performance Deeds of Trust and How to Sell Your Properties with Seller Financing Even if You Have a Mortgage
How to create a “wraparound” mortgage How to buy properties with “due–on–sale” mortgages that aren’t assumable
How to do a “kitchen table” closing without a title company or an attorney All about All Inclusive Trust Deeds, Wrap Mortgages, Shared Appreciation Mortgages, Performance Deeds of Trust and Land Contracts with sample forms
How to buy AND sell with wraparound mortgages How to sell your note to a note buyer All about installment land contracts and contract for deed How to buy and resell houses for huge profits with no cash or credit
Seats are limited so Click HERE to get registered and submit your questions in advance! This is obviously a great strategy but there are some instances when seller financing and creative financing strategies won’t fly. Such as buying a bank owned or foreclosed property. So, what do we do then?
Portfolio Lenders to the Rescue
Yep, you find a portfolio lender. Now, you might be saying, “Great! I’ll give my broker a call and have him get right on that. Problem solved.”
Not so fast.
Here’s a newsflash: Portfolio lenders don’t work with brokers.
For the most part, portfolio lenders are small local banks and credit unions and they do business with the borrower (you) directly. Never through a middleman or a broker.
There were a couple of nationwide portfolio lenders that I used to broker LLC loans to - World Savings and BankUnited – but neither one of those lenders accept submissions from brokers anymore. Wachovia bought World last year so you still may be able to approach them directly for portfolio loans but based on what I’m hearing, you’ll have better luck with smaller, local banks and credit unions.
Before I tell you how to find these portfolio lenders and more importantly, how to get them to make loans to you for real estate, let me give you some background.
What is a Portfolio Loan?
A portfolio loan is one that does not get sold off into the secondary market. When a portfolio lender makes a loan, they are keeping that loan on the books of their bank or credit union, not selling it off to someone else.
That means one very important thing to us real estate investors:
They don’t have to follow those ridiculous Fannie/Freddie rules!
Yes, they allow an unlimited number of financed properties, loans in the name of your LLC, blanket loans and unseasoned cash out refinances.
That’s the good news.
The bad news is that it takes some work to find them and they all have different underwriting guidelines.
They also usually do these income property loans as commercial loans even though the properties are residential. So, if you’re not familiar with debt coverage ratio, net operating income, etc now’s the time to brush up.
How Do I Get a Portfolio Loan?
This one might be a little tougher to answer. In fact, I had so many investors asking me for advice about getting portfolio loans that I developed my own Portfolio Loan Blueprint™. This blueprint is based on the exact steps that I personally took to get portfolio loans for myself and my own investments plus the investments of my friends and fellow investors.
It started in 2004 with a small credit union in Pueblo Colorado and a loan for $228,500. By the time Decibel was sold to ENT Federal Credit Union in 2006 my friends and I had closed more than $12,000,000 in investor portfolio loans with that one small credit union.
In my Portfolio Loan Blueprint™, I have 6 instructional videos and 4 live audio interviews I personally conducted with fellow investors and portfolio lenders to
explain how YOU can succeed with portfolio loans. But I want to share as much as possible with you in this report, so in a nutshell, here is the Portfolio Loan Process Map:
Prepare your personal Credibility Kit.™ This is a package of information you prepare for the portfolio lender that includes your personal financial statement (not a loan application), a statement of real estate owned, your real estate investing resume and an executive summary that explains the type of financing you’re seeking and your exit strategy.
Search for the lenders. There are many ways to find these small local banks and credit unions. Online is one way but don’t try Googling “portfolio lenders” because that won’t get you what you’re looking for.
Identify the go-to person. Once you find the bank you must know who to speak with. Just calling and asking for the mortgage lending department won’t get you there.
Make initial contact. At this point you’ll make the initial contact and either “screen and dump” or set an in-person appointment. There are certain things you want to say and certain things you must *never* say so it’s best to have a script for this. (Portfolio Loan Blueprint™ contains my personal scripts.)
Questions to ask. You’d think this is obvious but it isn’t always. You need to have a comprehensive list to ensure you can live with the terms that the portfolio lender is offering you. Questions about issues like prepayment penalties, LTV, fees, amortization, geographical restrictions, etc.
The meeting. After your initial contact, if the portfolio lender seems promising, you will meet with them in person. They will expect you to be able to clearly articulate what you are seeking and this takes a little practice. The Portfolio Loan Blueprint™ contains my personal meeting script as well as the top 10 questions that portfolio lenders will ask you. Preparation is key!
The offer. The lender will make the loan offer to you in writing and it’s essential you know what you’re reading!
That’s the Portfolio Loan Process Map which is a very high level overview of the Portfolio Loan Blueprint™.
We’ve Covered a lot of Ground Very Quickly Today.
We’ve learned about the new conventional rules of lending which are virtually shutting uninformed investors out of the game:
Elimination of loan programs for investors across the board Elimination of stated income loans for hard-working self-employed investors Refusing to let you refinance properties held in an LLC for asset protection MANDATING that 4 properties is ALL you are allowed to own
I’ve shared how the Portfolio Loan Blueprint™ walks you through STEP by STEP...
Exactly why you need to work with portfolio lenders How to find them What to say to them (I give you my own scripts!) How to create your own Credibility Kit™ that gets them hook, line and sinker
And BEST OF ALL how to get them to finance ALL of your properties in your LLC's name so they NEVER report to your personal credit bureau report.
The rest is up to you. If you’re going to succeed, you need to take action. This is true of any endeavor, not just real estate investing. I urge you to visit PortfolioLoanBlueprint.com to learn more.
You Don't Have to Go It Alone
I've spent countless hours since I first began investing in real estate in 1994 researching, testing and learning how to finance my own investment properties. I've been lucky to learn the secrets and over the course of the last 14 years do literally MILLIONS of dollars in portfolio loans for myself and my friends.
My pain is your gain. You will avoid the costly mistakes I've made during my learning process and add THOUSANDS IN PURE PROFIT. More importantly, you'll be able to keep buying properties in the AMAZING buyer's market when other real estate investors are sitting on the sidelines. And that, my friend, is how fortunes are made. Come join the ranks of the financially free.
All the best,
Susan Lassiter-Lyons PortfolioLoanBlueprint.com
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