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BORROWING MONEY: RULE #1 & RULE #2

If you are out looking for a new commercial mortgage loan, welcome. You’ve come to the right place. Brownstone Mortgage Capital Corporation is a private commercial mortgage lender. We have money to loan. Right away, you’ll see that our rates and fees are higher than a regular bank. Before you dismiss us because you think our money is too expensive, please do yourself a favor and read a bit further.

Maybe you have already applied to your local bank for a commercial mortgage. Most likely, when you first applied, everything sounded great; your local banker offered you great rates and terms; he was quite helpful in gathering all of your income papers; he might have even been optimistic when he submitted your application to "loan committee." However, either one of two things have happened to your bank application: One, your loan request is still in loan committee (and it will be there until you finally get tired and go away) or, two, the bank flat out turned your request down (most unlikely because banks would rather just string you along because it's less paperwork for them).

HOW TO SURVIVE THE MORTGAGE MELTDOWN

The power of the media is demonstrated once again with their recent announcement of the “mortgage meltdown.” For those new to the mortgage business, this has happened before and it will happen again. In the 1980s, the media named it the “Savings and Loan Crisis.” In the 1990s, the media labeled it the “Lender’s Short Sale Woes.” The Real Estate Market, just like any other financial market, moves in cycles. As goes the Real Estate Market, so goes the Mortgage Market. What is interesting this time is that this media announcement may be the loud bang that has sparked the real estate herd to move in a downward direction.

If you’re a mortgage broker, the operative question is: “What do I do?”

STEP 1: The first step in any crisis is: Don’t panic.

STEP 2: Make an assessment of your talents and strengths and take action to improve upon them. Here is a quick test I’ve put together that you may find helpful:

A SHORT HISTORY OF MORTGAGE BROKERING

PART 1

INTRODUCTION

The purpose of this article is to provide Mortgage Brokers with a short history of their industry so they can better chart their future. Particular attention will be placed on the mortgage industry since the 1980s, when the industry began to transform itself into what it is today.

The venue of the article is national in scope, with attention given to Southern California and specifically Orange County. Because of its active real estate market, much that has changed in the mortgage industry has had its creation in Orange County, California.

The author readily admits this short history to be interwoven with personal events and observations. However, it is the author’s hope that the readers will find this article helpful for their business future.

In the beginning:

Mortgage brokering evolved with the urbanization of the United States. One of the first Mortgage Brokers was Sonneblick & Goldman. Founded in 1893 in New York City, Sonneblick & Goldman got their start arranging debt financing for hard to finance real estate projects.

BROKERING A LOAN

One of our lending specialties at Brownstone Mortgage Capital is a land loan. As a mortgage broker, we thought you might want to know how we underwrite and analyze a land loan request.

Introduction

Our land loans are generally 60% LTV and less. Our rates are from 10.95% to 12.95%. Our terms are 1 to 10 years.

If you are unfamiliar with land loans, you might be asking, “Why are the rates so high and the LTV so low?” Answer: Land loans pose the most risk of mortgage lending. How many people do you know who own vacant land and how many people do you know who own a home? In other words, there are many more people looking to buy a home than there are people looking to own vacant land. With less demand comes higher risk. Also, there is risk in the unknown; of what the governing body will permit to be constructed and whether the new building will be a financial success.

Loan Categories

At Brownstone, we have 3 land loan categories:

A SHORT HISTORY OF MORTGAGE BROKERING

Part 2

INTRODUCTION:

In Part 1 of this article, we reviewed the tumultuous history of the mortgage industry in the 1980s. Change was the key word for the 1980s. In contrast, by the start of the 1990s, the mortgage market was relatively stable.

Interest rates, however, would still remain high in relation to what they are today in 2005. 30 year fixed rate mortgages started above 10% in the early 1990s and then went “down and up and down” through out the decade, finally settling around 7% in the late 1990s.

The 1990s

The Savings and Loan Bailout:

The decade of the 1990s for the mortgage industry started with the bailout of the Savings and Loans. Why was this important? Up to this point, the Savings and Loans were a main money source for Mortgage Brokers. Not only did Mortgage Brokers submit residential loans to them, but A&D loans, (Acquisition and Development loans), Construction loans, Apartment Loans and Commercial Loans.

In August of 1989, President George H. Bush implemented federal legislation that established the RTC (Resolution Trust Corporation). This Federal Agency was given the task to shut down or take over those Savings and Loans that were insolvent.

This was the most expensive US bank failure ever. It wound up costing the American Tax Payers over $100 Billion Dollars.