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MARK…. MY WORDS – A PRIVATE MONEY MORTGAGE BROKER’S DIARY OF DIFFICULT DEALS (Part 3)

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GIRA POLLI RESTAURANT

That said, here’s one deal that really had the embodiment of failure written all over it. Nevertheless, I took on the challenge for a couple of reasons, one of which was I knew the client and she was a friend in need! The client had been referred to me by an attorney I knew whose son went to the same grade school as my youngest daughter. The client was a woman in her late 70’s. She had dedicated 30 years of her life to literally building a restaurant facility and operating the business out of that building in the town of Mill Valley, CA. The establishment was known for its great Italian dishes and specialty roasted chickens.

This client and her husband, the chef, had imported an oven that was made in Italy for roasting chickens. The restaurant was known as ‘Gira Polli’ which means ‘roasting or turning chickens’ in Italian. The oven was so big that they had to build the restaurant around it. It was far too large to put it through the doorway of any existing structure where they wanted to be located. Together, this Italian couple created a popular restaurant and meeting place for more than two decades. Unfortunately, in the latter part of the third decade of operating this business, their business slowed down considerably. They were spending more than they were earning. They fell into serious debt and ended up in bankruptcy court.

At the time they were referred to me, they had been given a chance by the court to rearrange their debt. They were in Chapter 11. That meant they had the opportunity to repay their creditors and remain in business providing they could find a loan to bail them out. The time was 2014-2015. The client’s attorney asked me them to help them save their restaurant business and their restaurant property. They faced a total loss of their property and their business if they didn’t find a solution.

I remember trying every private money lender I knew as well as plodding through new lenders only to run into one roadblock after another. Either the lenders didn’t handle or want to be involved in working on deals where the client was trying to get out of bankruptcy. They also didn’t want to get involved in lending to restaurant operators or restaurant properties. I found out very quickly that lenders didn’t like restaurant properties in general. Restaurant owners were one thing but a restaurant business and the building it occupied was a different matter altogether! After approaching at least ten different lenders, I was coming up empty handed.

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As luck would have it, a commercial realtor I had known for many years referred me to a private money company that wasn’t on my radar just when I was running out of time to find a possible solution. This was a local lender who turned out to have investors that were willing to consider this situation. Here was a client in desperate need of a substantial amount of money that owned property of considerable value. This gave the private money lender the elements to offer a high rate of return for their investors’ money with sufficient protection should the client default. The property would easily cover any loss in a ‘fire sale’ situation. In other words, if the client were to default on the repayment of the debt, the lender could seize the assets and sell it for well below its value to obtain the funds to cover their clients’ investment.

Through the private lender, LRG was able to get the client approximately one-million, six-hundred fifty-thousand dollars. This was enough money to pay off all their existing debts per the court order . This pumped new life into the clients’ life and business. Further, the new loan bought them much needed time. They realized that if they couldn’t continue operating the business and remain in a positive cash flow situation, they would have a chance to sell the property for what it was worth instead of being subject to foreclosure. After about another year and a half of struggling, the clients realized they needed to sell the property and divest themselves from the constant debt burden they were in.

The property was in a very strategic location in Mill Valley. There was a Chase Bank, a shopping center and medical offices on the other 3 corners of the four-way intersection where this restaurant property resided. The intersection saw an average of 50,000 cars pass through every day. With the help of their attorney and a realtor, the clients sold their property for three million dollars. The woman of this couple and I became very close friends as a result of this experience. She was very grateful for my unrelenting assistance. Our relationship would bring us back together over another real estate challenge that she faced a few years later.

LAKE COUNTY LAND LOAN

One of the more standout transactions that I accomplished in the past two decades was a land loan for a client that was referred to me by a broker who I hired when I was a Manager at the CTX Mortgage company. He and I developed a close friendship. We stayed in close touch even though we had taken different paths in the real estate mortgage business.

This was another client who was on the verge of losing his ownership interest in his property to his partner who owned fifty percent of it. The Partner told our client if he didn’t buy him out he would foreclose on him and become a one-hundred percent owner of this property. The partner wanted to retire and was actively cashing out of some of his properties. The property was approximately 150 acres of undeveloped land in Lake County, just north of the Napa county wine region. The property was earmarked to develop 380 homes on 102 acres and build several commercial properties on the remaining 48 acres. My client had invested two million dollars of his own money in the property. Once again, I was faced with a land loan on only partially entitled land with a client facing foreclosure if he didn’t pay off his partner’s share of ownership.

The difficulties of this deal were far greater than the prior land loan I closed for the property located in Pacifica. This property was in a more remote area of northern California known as Lake County. The property was not completely entitled for what the client wanted to build and the plans for the development were also incomplete. I worked on this loan for what seemed like endless months of searching for a lender. The way I found the lender that eventually provided my client the loan is, by itself, a classic study of asking anyone and everyone I knew in the business for a referral.

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One of my sources was a residential mortgage broker who, from time to time, refers deals to me. I asked him if he knew anyone for this particular loan. He referred me to another broker he knew who he thought might know someone for it. I called that person. He referred me to yet another broker who he thought might have a connection for this deal. Talk about a ‘broker chain’?! Well, that’s what it took. The third broker in the ‘who do you know chain’ referred me to the lender that actually made the loan to my client. I started working on this loan request in March of 2016. The loan closed in March of 2017. There was some down time in between that twelve month period and there were times when the deal looked like it wasn’t going to happen. Sheer persistence made it happen! With a loan of approximately four million dollars, my client took full ownership of the property and covered the closing costs including my fee and an equivalent fee for my friend who brought me the deal and helped maintain consistent communication with the client. We celebrated with a dinner at a local restaurant. It was a huge success for the client not to mention LRG!

At this point I have chronicled some of my more memorable and hard-to-do transactions over the first decade of LRG’s business venture into the complicated world of commercial real estate financing. I consider this Part One of a Two-part series. As this goes to press, I have begun work on Part Two. The second decade of LRG’s mortgage success stories will consist of more unique situations like the ones you’ve read about here but all very different in their circumstances. I hope you’ve enjoyed some of the intrigue and last minute achievements that, without them, the clients may have had very different outcomes. More to come!

Meet Mark Robbins

Mark Robbins has pioneered non-recourse financing for IRA investors since leveraged financing became available to the public through a small bank in the Midwest in 2004. Since that time only a few select banks even offer these loans. He has established and maintained relationships with these lenders over the past twenty years.

Mark has obtained non-recourse loans, per IRS regulations, for numerous real estate investors in more than 30 states including Hawaii. Mark is a preferred provider for many of the IRA servicing companies including the Equity Trust Company, uDirect IRA, the Provident Trust Group, Entrust and many other IRA custodial and administrative providers for clients who require non-recourse financing for their IRA funded real estate investments.

Mark graduated from New York University in Bronx, New York with a B.A. in History and Western State College of Law in Fullerton, California with a Juris Doctorate (J.D.). Mark is an entrepreneur and has operated several different businesses over the past forty years including a division of a major commodities investment firm, his own hi-tech executive search company and presently a commercial real estate mortgage brokerage company known as Lending Resources Group Inc. that he founded in 2007.

He has been a real estate investor and developer having designed and built four homes since 1982. He became a mortgage banker in 2002 with Bank of America and went on to work for CTX Mortgage, a division of the home building company, Centex Corp., in Dallas. Mark was recruited to start an in-house mortgage division for a popular townhome development company in San Francisco in 2006. That firm dissolved in the wake of the financial crisis in 2007=2008. During his tenure in mortgage banking, Mark has generated more than $120 million in residential and commercial mortgages for homeowners and investors nationwide.

If you have any questions about how to invest your IRA in real estate, please contact Mark at 415-309-1803 or by email: [email protected]. You can also reference his website at: www.lendingresourcesgroup.com.

MARK…. MY WORDS – A PRIVATE MONEY MORTGAGE BROKER’S DIARY OF DIFFICULT DEALS (Part 1)

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By Mark Robbins, J.D.

As many of you know, being self-employed is not an easy task by any stretch of the imagination. I have certainly worked for both small independent companies as well as large corporations throughout my various careers. I’ve worked for the Bank of America’s of the world as well as private real estate development companies and smaller private mortgage companies. I’ve seen both sides of the employment spectrum. Every experience has its own set of positives and negatives. I eventually decided it was best to pursue my career as a mortgage consultant on my own terms.

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It’s been a very challenging endeavor to navigate the world of real estate financing in the private sector as opposed to the more conservative world of conventional banking. I chose the commercial real estate marketplace for two main reasons. I enjoyed the variety of each unique transaction. Whether I was helping a client finance a small apartment building or purchase a retail shopping center, the challenge was never the same. Secondly, financing mortgages strictly for home purchases or refinances involved too much of the same thing repeatedly.

Lending Resources Group Incorporated was born in late 2007 and licensed by the State of California in May 2008, just before the “Crash,” now known as the Great Recession of 2008. It seems like my career path has been dictated by the ups and downs of our economy over the past four decades. Ever since I graduated from law school and sought a job in the financial industry, I have run the gauntlet of the financial markets’ highs and lows.

GAS STATIONS?

When I was starting out with my own corporation in 2008 under the name Lending Resources Group Inc., I needed to find a source of leads for people who needed my services. I found a company that sold leads, so I subscribed to its service.

One of those leads was an individual who owned Shell gas stations. He wanted to purchase two more stations that were up for sale. After three months, I found a lender that approved a $2 million loan to meet his request. Unfortunately, the client had a heart attack. The good news was that he survived; the bad news was that he had to turn the loan down because his doctor told him he needed to reduce the stress in his life and, therefore, shouldn’t buy any more gas stations. Ugh! What can you do? Absolutely nothing—you just move on.

I had another client approved for a loan to purchase a gas station in Los Angeles, but that came at the same time the stock market crashed and banks were hit very hard in September 2008. Many had to close. One of the banks that closed was the one that had approved this gas station loan. So there I was again, working hard but not earning much of a living due to the investor’s health problems as well as world-changing events.

Disappointing? Yes, but that’s life. Those events didn’t deter me from my goal of building a lasting commercial mortgage financing business. Now that I’m writing this, it’s been a challenging task to chronicle my early days of starting my own mortgage company. After all, that was nearly twenty years ago. I didn’t keep a diary of the deals I was working on. Suffice it to say, I took whatever came along and used my know-how to find solutions. My memory still serves me very well, allowing me to recollect some of the more memorable loan situations I faced.

I was barely scraping by, especially with the onset of the Great Recession. I was lucky in one respect. Since the banks were hit so hard by the economic downturn and because I had a sizable mortgage on my primary residence, they left me alone. This bought me the time I needed to build up my business and, in the interim, see what solutions the banks were going to develop, if any, to assist borrowers like myself. I eventually did receive a workout solution for my home mortgage. I was able to straighten out my financial affairs and stabilize our living situation while building my new business.

NON-RECOURSE LOANS

Business was hard to come by, considering we were in a recession just as I was trying to get my company off the launching pad. Somehow, I was eking out a living. I was very motivated to help people achieve their real estate financing goals. One steady stream of income I developed was specializing in helping investors obtain non-recourse loans (loans without a personal guarantee) when purchasing real estate with their IRAs, trusts, or Solo 401(k)s.

Back in 2004, three years before I started Lending Resources Group, I was introduced to the Founder and Chairman of Pensco Trust in San Francisco. Pensco was one of the largest IRA custodian companies in the U.S. It later became Pacific Premier Trust and moved to Denver when the Chairman retired. This was during the time I was working as a mortgage broker for CTX Mortgage, a division of the Centex homebuilding company based in Dallas, Texas.

The Chairman suggested I investigate this type of mortgage because no one in the U.S. was offering it at that time. Four months after that meeting, a small bank in the Midwest introduced a non-recourse mortgage loan program for people who wanted to invest their retirement funds in real estate and needed a mortgage to complete the financing. This allowed investors to purchase one-to-four-unit properties with their IRA retirement funds without personally guaranteeing the loans. This was required by the Internal Revenue Service because the retirement funds had not yet been taxed. The IRS did not want its tax interest in those funds involved in any transaction that required a personal guarantee. If the investor needed to access those funds in the future, the IRS would then receive its taxable share.

Prior to 2004, if someone wanted to invest retirement funds in real estate, they had to pay all cash. There was no such thing as a non-recourse mortgage for residential real estate investing before 2004. As a result of this new product, I slowly began to find clients, mostly through referrals and word of mouth, while working for CTX Mortgage and working hand in hand with Pensco. They were a great source of referrals for me. By the time I started my own mortgage company, I was becoming better known for being able to arrange these specialty loans. That has continued to this day. These loans have provided a helpful supplement to the main portion of my commercial mortgage business.

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BURBANK BUILDING – MONTH TO MONTH LEASES

Getting to the heart of what I have dealt with over the past twenty years is best described through some of the more unique situations I’ve had the opportunity to be part of.

In my constant search for business, I found another client who was having trouble refinancing his property, an office building. He needed to pay off his existing loan and obtain enough money to make much-needed renovations to the building. The property was located in Burbank, CA, and comprised thirty small office units. The client needed $3.5 million to pay off his current debt and obtain an additional $500,000 to make improvements. I remember searching high and low for a lender for this client but constantly running into rejections because the tenants were on month-to-month leases. No lender I found was willing to lend that much money without the assurance that the tenants would maintain longer-term leases.

The positives of this transaction included having a motivated client who wanted a new loan. He also had good credit and a solid income as a certified public accountant (CPA). Moreover, most of his tenants had been in the building for many years, and occupancy was consistently at 90%, even though the leases were only month to month.

In my dogged pursuit of a loan for this client, I found a reputable brokerage firm in Los Angeles that had connections with several private banks. These were the kinds of connections I couldn’t possibly have had, having been in the private money business for only three years at that point. The year was 2011, and coincidentally, I had to be in Burbank for a family celebration. I also scheduled a visit with my client to further strengthen our relationship.

The affiliate brokerage firm’s private bank ultimately provided the loan my client needed. We co-brokered the transaction. It turned out to be my first five-figure paycheck since starting the company. More importantly, it gave me the great satisfaction of overcoming a very challenging loan request and helping this client achieve his goal of refinancing his office building—something no one before me had been able to accomplish. It was a true feeling of accomplishment!

Meet Mark Robbins

Mark Robbins has pioneered non-recourse financing for IRA investors since leveraged financing became available to the public through a small bank in the Midwest in 2004. Since that time only a few select banks even offer these loans. He has established and maintained relationships with these lenders over the past twenty years.

Mark has obtained non-recourse loans, per IRS regulations, for numerous real estate investors in more than 30 states including Hawaii. Mark is a preferred provider for many of the IRA servicing companies including the Equity Trust Company, uDirect IRA, the Provident Trust Group, Entrust and many other IRA custodial and administrative providers for clients who require non-recourse financing for their IRA funded real estate investments.

Mark graduated from New York University in Bronx, New York with a B.A. in History and Western State College of Law in Fullerton, California with a Juris Doctorate (J.D.). Mark is an entrepreneur and has operated several different businesses over the past forty years including a division of a major commodities investment firm, his own hi-tech executive search company and presently a commercial real estate mortgage brokerage company known as Lending Resources Group Inc. that he founded in 2007.

He has been a real estate investor and developer having designed and built four homes since 1982. He became a mortgage banker in 2002 with Bank of America and went on to work for CTX Mortgage, a division of the home building company, Centex Corp., in Dallas. Mark was recruited to start an in-house mortgage division for a popular townhome development company in San Francisco in 2006. That firm dissolved in the wake of the financial crisis in 2007=2008. During his tenure in mortgage banking, Mark has generated more than $120 million in residential and commercial mortgages for homeowners and investors nationwide.

If you have any questions about how to invest your IRA in real estate, please contact Mark at 415-309-1803 or by email: [email protected]. You can also reference his website at: www.lendingresourcesgroup.com.

Financing Overleveraged Homeowners Who Continuously Refinance and Living Off The Proceeds

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They Perceived That Their Strategy of Continuous Refinancing Was a Smart Decision Until It Wasn’t

By Dan J. Harkey

Summary

The last mortgage broker who attempted a refinance for this savvy couple discovered that there was insufficient equity. The mortgage broker rediscovered the doctrine of impossible performance.

Meet a smirky couple, let’s call them John and Jane, who, with their savvy financial strategy, could be considered the kings and queens of leveraging.

Their journey began a decade ago when they purchased their home. As its value soared, they smartly refinanced and withdrew cash to cover their living expenses. This strategy initially seemed to be a stroke of financial genius, sparking the interest of many with its initial success and leaving the audience intrigued and eager to learn more.

They bought their home a decade ago, and as its value increased, they repeatedly refinanced. Refinancing, in simple terms, means they replaced their existing mortgage with a new one, often with better terms, and pulled out cash to cover their living expenses. This move should have raised some red flags and left many feeling uneasy.

The strategy involved choosing an adjustable-rate loan with an initial fixed-rate teaser low payment and refinancing at the end of the teaser period.

When the adjustment from fixed to ARM with an index caused their payments to go up the last time around, they found themselves in a situation they could not afford. This is a predicament that many of us can relate to and empathize with, fostering a sense of sympathy and understanding in the audience.

This couple’s story is a stark warning about the potential risks of repeated refinancing and the crucial role of building equity in property. It’s a lesson in financial responsibility that every homeowner should heed.

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Article:

Home prices in many areas have more than doubled since 2010, rising by 50% in the last ten years. There are occasional blips where values are flat or go down.
https://www.lewrockwell.com/2024/09/david-stockman/mother-of-all-housing-bubbles/

Consider this scenario: This homeowner defaults because their property lacks equity to refinance for the umpteenth time. Equity, in simple terms, is the value of your home that you truly own, which is the difference between the market value of your property and the amount you owe on your mortgage. This situation is a powerful reminder of the potential financial pitfalls of not building equity in your property. It’s a crucial lesson that every homeowner should be enlightened about.

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While the couple may have pointed fingers at the last mortgage broker, their situation underscores the importance of personal responsibility in meticulous financial planning and decision-making. It also sheds light on the risks for a mortgage broker participating in the refinance of such an irresponsible borrower. The mortgage broker, who is supposed to guide and advise the borrower, also bears responsibility in such situations. By emphasizing personal financial commitment, we can prevent such situations and take control of our economic well-being, empowering the audience to take charge of their financial future.

Overleveraging, which is borrowing too much money, can lead to financial instability and potential default. The couple in our story faced this risk; every homeowner should know it.

Dan Harkey
Educator & Private Money Real Estate Lending Consultant
[email protected] 949 533 8315
www.danharkey.com

Stratton Equities: Pioneering the Future of NON-QM Mortgages

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PARSIPPANY, N.J.–(BUSINESS WIRE)–In an ever-evolving mortgage lending landscape, NON-QM mortgage loans are emerging as the industry’s future, providing opportunities for a wider range of borrowers to achieve their homeownership and investment goals. Stratton Equities, the Leading Nationwide Private Money and NON-QM Mortgage Lender, has been at the forefront of this revolution for the past six years, setting the pace for other companies to follow.

NON-QM mortgage loans, short for non-qualified mortgage loans, have gained significant traction in recent years as a viable alternative to traditional QM (qualified mortgage) mortgage loans, which come with stringent government regulations and eligibility criteria. Recent statistics reveal that only a small percentage of Americans qualify for QM loans due to these stringent requirements.

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According to industry data, the demand for NON-QM mortgage loans has steadily increased yearly, with a notable surge in the past few years. In 2022 alone, NON-QM loans accounted for a significant portion of the mortgage market, surpassing expectations. It has been estimated that one in four loans will go NON-QM in the near future.

Stratton Equities recognized the potential of NON-QM loans six years ago, positioning themselves as pioneers in private money lending, specifically NON-QM mortgage loans. This early recognition of market trends has been the cornerstone of their continued success.

Michael Mikhail, CEO and Founder of Stratton Equities, emphasized their focus on generating NON-QM leads and their commitment to offering a wide range of lending programs, including NON-QM, DSCR, Hard Money, and No-Doc Loans. He stated, “Our aim has always been to provide solutions that cater to a broader spectrum of borrowers. Stratton Equities had the foresight six years ago to recognize the market’s direction, which is why we were at the forefront of NON-QM mortgage lending. This serves as a foundation for our continued success.”

NON-QM mortgage loans are designed to serve most Americans who do not meet the strict eligibility criteria of QM loans. These loans facilitate home ownership, second home ownership, and investment properties, allowing income generation and wealth building for a more diverse range of borrowers. Contrary to misconceptions, NON-QM mortgage loans often offer competitive rates, making them attractive.

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Traditional lenders like banks and credit unions primarily offer QM loans for one-to-four-family investment properties. However, these loans have heavy documentation requirements and lower loan-to-value (LTV) ratios, typically capping at 70%. Stratton Equities stands out by providing NON-QM mortgage loans for such properties with easier qualifications, lower documentation requirements, and higher LTV ratios, currently at 80%.

Stratton Equities also recommends closing within an LLC for investment properties due to tax and security advantages. Despite some lingering stigma associated with NON-QM mortgage loans, they often result in lower rates, higher LTVs, and streamlined documentation, making them a practical choice for borrowers.

Educating borrowers about the advantages of NON-QM mortgage loans and dispelling misconceptions is vital. Stratton Equities is committed to leading the way in providing these beneficial lending options and believes in the potential for growth and success in this market. Their loan officers benefit from the advantages offered by the company, including a consistent stream of leads, as exemplified by recent hires who have quickly achieved success within the organization.

Stratton Equities invites individuals and investors to explore the world of NON-QM mortgage loans and discover the possibilities for achieving their financial goals. For more information, please visit www.strattonequities.com.

For more information about Stratton Equities, please visit their website at https://www.strattonequities.com. Follow Stratton Equities on social media on Instagram, Facebook, and YouTube @StrattonEquities, LinkedIn @stratton-equities, and Twitter @Strattonequity.

Contacts
Kelly Bennett, Director of PR
Stratton Equities
[email protected]
(949) 463-6383

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Stratton Equities is Hiring Mortgage Loan Officers to Join Their Dynamic New Jersey Team and Build a Lucrative Career in the Mortgage Industry

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Stratton Equities is looking for loan officers who are ready to say “yes” more and to work with a company that’s invested in their success.

PARSIPPANY, N.J.–(BUSINESS WIRE)–Stratton Equities, the Leading Nationwide Private Money & NON-QM Mortgage Lender, is excited to announce that they are seeking experienced Mortgage Loan Officers to join their headquarters in New Jersey.

This is an incredible opportunity for skilled professionals who want to work with a company that guarantees abundant direct organic daily leads, hands-on management training and support, niche mortgage loan programs with competitive pricing, and advanced mortgage technology.

Mortgage Loan Officers can expect to close their first loan within four to six weeks after the completion of their initial training.

Mortgage Loan Officers who join the Stratton Equities team can expect the following:

  • Stratton Equities provides Mortgage Loan Officers with inbound organic daily leads from borrowers who call or apply directly to their offices inquiring about a mortgage. Not the other way around.
  • Competitive compensation: Stratton Equities offers a highly competitive compensation plan, potentially allowing Mortgage Loan Officers to earn their first year $110,086.26 – $190,677.36.
  • Robust support: Stratton Equities provides Mortgage Loan Officers access to the most extensive library of nationwide private money and NON-QM mortgage loan programs under one roof. This gives multiple solutions to offer borrowers, allowing Mortgage Loan Officers to say “YES” more.
  • Strong resources: Stratton Equities’ interest rates are some of the lowest nationwide in private lending, starting at 6.75%, and can pre-approve a loan in 24 hours.
  • Room for growth: As a rapidly growing company, Stratton Equities offers ample opportunities for advancement and career growth. With a focus on promoting from within, Mortgage Loan Officers who join the team will have the chance to take on new challenges and responsibilities as they progress in their careers.
  • A dynamic work environment: At Stratton Equities, Mortgage Loan Officers will work in a fast-paced, dynamic environment focused on innovation and results. As a part of the loan officer team, you can work directly with prospective real estate investors, entrepreneurs, and borrowers on their real estate endeavors.

If you are an experienced Mortgage Loan Officer looking for an exciting new opportunity to grow your career or a licensed Mortgage Loan Originator that is new to the industry and needs help finding business, then Stratton Equities is the place for you to earn a great income.

This is an incredible opportunity to join a leading nationwide mortgage lender and build a bright future with a company that values its employees and their contributions.

For more information about Stratton Equities, please visit https://www.strattonequities.com.

To apply for a position with Stratton Equities, please visit their careers website at https://www.loanofficerscareers.com. Or you can email a resume to [email protected].

Follow Stratton Equities on social media on Instagram, Facebook, and YouTube @StrattonEquities, LinkedIn @stratton-equities, and Twitter @Strattonequity.

Contacts
For media inquiries and interviews, please contact Kelly Bennett of Bennett Unlimited PR at [email protected].

Deed of Trusts and Mortgage Investments

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Real estate lending encompasses both real estate and securities laws.
 
A) Deeds of trust and mortgage instruments are securities:
 
Promissory notes secured by deeds of trust or mortgages are security instruments. These contracts represent evidence of indebtedness. Ownership is a security under the Federal Securities Act of 1933.

  • The definition of security under federal law is as follows:

a) Property given or pledged to guarantee the performance of an obligation.
b) An instrument that functions as proof of a security interest in a public or private body. 

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  • Parties in a loan transaction:

Borrowers and private-party lenders are the principals in a transaction. A borrower will sign a promise to pay called a promissory note and the security instrument called a deed of trust. The deed of trust is an instrument recorded at the county recorder’s office, which becomes a matter of public notice of the charging lien against the property.

The note and deed of trust are contracts between the borrower and private-party lenders. After the loan closing, the investors/lenders, or the servicing agents of the investors, will retain the executed and recorded documents as evidence of the investment.

Promissory notes and deeds of trust (or mortgages) are considered personal rather than real property.

B) Deeds of trust and mortgage investments are securities requiring federal or state registrations unless there are applicable exemptions from registration.

Each state in the U.S. has its own securities laws and regulations. State statutes, known as Blue Sky laws, are designed to establish safeguards against fraud for investors.  Each state passed separate securities laws to protect the public from fraudulent schemes as far back as 1911 in Kansas. The term “blue sky law” originated in the early 1900s, gaining widespread use when a Kansas Supreme Court justice declared his desire to protect investors from speculative ventures that had “no more basis than so many feet of ‘blue sky.’”

  • What does securities registration mean?

Registration occurs when a company files the required documents with the Securities and Exchange Commission (SEC). The extensive process involves approving disclosures and other information related to the offering. There will usually be quarterly and annual reporting requirements.

Unregistered securities have fewer protections than registered securities. Companies can only sell unregistered shares to a limited number of qualified or high-income and high-net-worth investors.

  1. Securities overview:

Federal and state securities exemptions from registration are common and available.

  • Federal Exemptions:

Federal exemptions for privately funded loan transactions and loan pooled investors are referenced in Regulation D, Rule 506 section 4(a)(2), and 506(b), Regulation A, and Rules 147 and 147A. Information about these regulations can be found at:

https://www.investor.gov/introduction-investing/investing-basics/glossary/regulation-d-offerings

https://www.sec.gov/education/smallbusiness/exemptofferings/rega

https://www.sec.gov/education/smallbusiness/exemptofferings/intrastateofferings

Definitions and exemptions are on the www.sec.gov website.

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  • State securities exemptions: 

Each state has its own securities laws and exemptions.

I am using California as an example because that is my state of origin. However, those involved with loans and investors in other states should identify their dominion’s relevant state securities statutes.

  • California Corporate Codes relating to securities are 25000-31516

California Corporate Securities Law of 1968 regulates all offerings and sales of securities in California. All securities offered or sold must be qualified by the Department of Financial Protection and Innovation Commissioner or exempted from qualification and registration by a specific law or corporate rule. Securities references include 10CCR, Chapter 3, Sections 260.115 and 260.204.1, California Corporate Securities rules 25206, 25100 (p), 25102, (e) (f) (n), and 25102.5 which refers to the multi-lender rules.

a) 25100 (p), is referred to as a whole note exemption, one note purchased by one party

(p)  This is a promissory note secured by a lien on real property which is neither a series of notes of equal priority secured by interests in the same real property nor a note in which beneficial interests are sold to more than one person or entity.

b) 25102 for state offerings exemption

c) 25102 (e)

Under Section 25102 (e, f,), an exemption from the qualification requirement for issuer transactions is available for any offer of sale of evidence of indebtedness, a partnership, a joint venture, and certain participating interest in railroad rolling stock, or other equipment, if the transaction does not involve a public offering.

California state exemptions for fractional trust deeds are 25102(e), 25102(f), and 25102.5, which cover multiple investors who invest in real estate loan transactions.  25102(e) and 25102.5 allow a maximum of 10 investors.  Both exemptions, 25102 (e) and 25102.5 contemplate lending on California properties with California-based investors. Family members are considered as one in the same household.

d) 25102.5is referred to as the fractional note exemption.

California rules are promulgated in the Business & Professions Code 10237-10238, 10232.3, 10232.4, 10232.5, Civil Code 2941.9, and many others.

Under the 25102 (e) and 25102.5 exemptions, ten private investors can co-invest into a single trust deed as tenants-in-common. The difference between 25102 (e) and 25102.5 is that “e” requires disclosure documents in the form of an offering circular, subscription agreements, and a suitability questionnaire.  25102.5 provides a framework for suitability and investor disclosures within 10237-10238 of the Business & Professions code. Interested parties should consult a real estate or securities lawyer specialist

e) 25102(f) private offering exemption.

The Corporations code sets forth an exemption from the qualification requirement for transactions where (1) the sale is to 35 or fewer persons, (2) each purchaser has a preexisting relationship with the securities issuer, (3) each purchaser represents the purchase is for the person’s own account, (4) the offer or sale is not accomplished through advertising, and (5) the issuer files a notice with the Department of Corporations,  within 15 dates from of the issuance. Corporate commissioner’s rule 260.102.14 provides instructions for filing the notice and paying a fee. Failure to file the notice on time negates the exemption.

25102 (f) allows up to 35 investors, with conditions. 25102 (f) does not require California investors or California properties for a particular loan request. Discuss with counsel.

There are three instances when a 25102 (f) exemption may be helpful. (1) when a trust deed requires more than ten investors, (2) when an occasional (accredited investor) out of state party invests in a trust deed on a California property, (3) when a California real estate lender makes a loan on an out of state property.

(f) 25113 provides a path to eligibility for qualification by a permit process.  An issuer may apply for a permit to operate under this section and provide the accompanying documentation as required by the commissioner. These permits are usually renewable annually. Caution: Applying appropriate securities exemptions and actions to remain in regulatory compliance is most likely accomplished by consultation with a qualified securities attorney. The above is a general but not all-inclusive overview of securities compliance.

2)   California Corporate Commissioners rule 25206. 

A broker licensed by the Real Estate Commissioner is exempt from the provisionsof Section 25210(broker-dealers) when engaged in transactions in any interest in any general or limited partnership, joint venture, unincorporated association, or similar organization (but not a corporation) owned beneficially by no more than 100 persons and formed for the sole purpose of, and engaged solely in, investment in or gain from an interest in real property, including, but not limited to a sale, exchange, trade, or development. An interest held by a husband and wife shall be owned by one person for this section.

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3)   California Code of Regulations, Section 260.204.1

An exemption from the provisions of Section 25210 of the Code is hereby granted, as is necessary and appropriate in the public interest and for the protection of investors, to any person who is a real estate broker as defined in Section 10131of the Business and Professions Code, duly licensed to engage in the business of a real estate broker in this state, and whose business as a broker-dealer, in addition to any transactions within Section 25206 of the Code, is limited to any or all of the following:

  • (d)   Transactions in a series of notes secured by interests in the same real property, or undivided interests in a note secured by real property, according to qualification under Section 25110, Section 25120, or Section 25130 of the Code or according to the exemption contained in Section25102(e), Section 25102(if) or Section 25102.5, other than an offering which is made under a registration under the Securities Act of 1933 or a Regulation “A” exemption under that Act ( 17 CFR 230.231 et seq.).

California is highly regulated, with other laws passed and pending future legislative bills that diminish property ownership rights and lessen processionary benefits. Real property ownership rights and benefits continue to be eroded.

There are hundreds of code sections about licensing, fiduciary obligations, operation of real estate and mortgage companies, and disclosure requirements for both borrowers and trust deed investors. I omitted the abundantly extensive list of all the code sections because the number is significant. Therein lies the continuous employment of lending consultants, expert witnesses, real estate lawyers, and securities lawyers.

C)  Disclosure requirements for trust deed Investors.

A California mortgage broker soliciting an investor to purchase all, or a fractional share of a trust deed must provide a lender/purchaser disclosure statement before taking funds.

  • A lender/purchaser, disclosure statement 851-C, revised 7/2018

https://www.dre.ca.gov/files/pdf/forms/re851c.pdf

  • A lender purchaser disclosure statement for the multi-lender form is 851-A, revised 7/2018

https://www.dre.ca.gov/files/pdf/forms/re851a.pdf

  • A lender-purchaser disclosure statement for the sale of an existing note 

https://www.dre.ca.gov/files/pdf/forms/re851b.pdf

  • Investor disclosures are in 10232.3 &10232.5 of the California Business and Professions Code. 

Business and Professions Codes 10232.3 and 10232.5 outline the disclosure requirements the funding lender must adhere to for a real estate licensee. I am highly familiar with these requirements since I co-sponsored Senate Bill SB 1554 in 1998 and wrote a portion of the language that resulted in adopting the code.

The purpose is to provide the investors with written disclosures to make them aware of the material facts and risks and to enable them to make an informed investment decision.

Section 10232.5 outlines required investor disclosures.

  • Address or other means of identification of the real property that is to be the security for the borrower’s obligation.
  • Estimated fair market value of the securing property as determined by an independent appraisal, a copy provided to the lender.  However, a lender may waive the requirement of an independent assessment in writing on a case-by-case basis, in which case, the real estate broker shall provide the broker’s reported estimated fair market value of the securing property, which shall include the objective data upon which the broker’s estimate is based.  A broker has the option of issuing broker’s opinion of value.”
  • Age, size, type of construction, and a description of improvements to the property if contained in the appraisal or as represented to the broker by the prospective borrower.
  • Borrower(s) Identity, occupation, employment, income, and credit data as represented to the broker.
  • Terms of the loan transaction.
  • Liens and encumbrances: pertinent information concerning all liens and encumbrances against the securing property and, to the extent of actual knowledge of the broker, relevant information about other loans that the borrower expects or anticipates will result in a lien recorded against the collateral property securing the promissory note, created in favor of the prospective lender.  As used in this paragraph, actual knowledge concerning any anticipated loans means knowledge gained by the broker through arranging the subject loan or other loans on behalf of the borrower. 
  • Title insurance: The broker shall provide the prospective lender with the option to purchase a title insurance policy or an endorsement of an existing title insurance policy covering the securing property.
  • Written loan application (signed) loan application.
  • Credit report.
  • Loan servicing provisions: including disposition of the late charge and prepayment penalty fees paid by the borrower. 

Industry standards and best practices may expand investor disclosures. Here are recommended guidelines on data accumulation.

  • Individuals/entities: The borrower may be one or more individuals or an entity such as a family trust, limited liability company, or corporation. The procuring loan broker should be able to articulate who the borrower is and provide a brief background.
  • Collateral property: Describe the property and its uses, along with the address. Describe the tenancy, income stream, and vacancy if the property is income-producing. Describe the condition of the property and its strengths and weaknesses. Will the property be improved because of this loan?
  • Purpose of loan: What is the intended use of the loan proceeds? What other debts are to be paid as part of the loan?  How much net proceeds will the borrower receive? What will the net proceeds be used for? Will the majority of the loan proceeds be used for consumer or business purposes?

Some lenders operate under a pooled limited liability format with a California Finance Lenders license.  Others operate under a Bureau of Real Estate broker’s license. Some real estate brokers also create pools using one of the various federal and state securities exemptions. Three questions arise: (1) does the entity or the security issuer have a fiduciary obligation to the investors? (2) is the entity required to follow real estate law? (3) can the entity or issuer wave or disregard reasonable and prudent underwriting processes without violating fiduciary or breaking the law?
 
 D)  Private-party investors:

Private-party investors may invest by purchasing 100% of a loan, co-invest fractionally, with a small group as tenants-in-common, or in a pooled entity format with other investors. Private-party investors include individuals, family trusts, corporations, IRAs, and pension plans.

Most investors invest with multiple ownership methods (holding titles), such as a family trust for a portion and an IRA custodian for a portion. I have noticed various titles for couples who establish a family trust for themselves and their descendants and invest in each. Multiple family members living in the same home are considered one investor for ten investors or less.

The entire trust deed investment percentage represents the investor’s beneficial interest portion of ownership. For example, if the trust deed investment is for $1,000,000 and the investor purchased $200,000, they would own a 20% undivided interest as tenants-in-common. A $100,000 investor would hold a 10% undivided interest as tenants-in-common with other investors. 

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Private-party Investors who desire to invest in trust deeds with their available capital understand that they are securing their investment by accepting a signed promissory note from a borrower, a signed and notarized recorded deed of trust on the security property. Investors’ names are affixed on a recorded trust deed as beneficiaries. Investors will also assume there is a title insurance policy with their names connected as beneficiaries.
 
Trust deed investments usually provide for receiving monthly interest payments from the borrower and are distributed to the investors. The annualized yields are comparatively reasonable. Investor distributions are generally a tiny fraction less due to being charged a servicing fee.
 
Interested parties should seek loan broker professionals who understand required regulatory compliance, best practices process & underwriting, and correct documentation. Lastly, interested parties should seek someone with an experienced track record as their agent and source of trust deed investments.
 
Thank You,

Dan Harkey.

Dan Harkey

Dan Harkey is a contributing author to Weekly Real Estate News and is a Business & Financial Consultant. He can be contacted at 949-533-8315 or [email protected].

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From Homelessness to Multi-Millionaire: Michael Mikhail Leads Stratton Equities in Celebrating 5 Years of Success and Achievement

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(New Jersey, July 25, 2023) – Stratton Equities, the Leading Nationwide Private Money and NON-QM Mortgage Lender, proudly celebrates its fifth anniversary. Since its launch in 2018, Stratton Equities has experienced significant growth and expanded its operations. The company has successfully established itself as a prominent player in the real estate investment and lending industry under the visionary leadership of its Founder and CEO, Michael Mikhail.

Mikhail encountered numerous challenges on his path to becoming a prominent figure in the industry. Following a five-year journey spanning 19 countries, he returned to the United States in 2017, homeless and without financial resources. However, his unwavering determination to reshape his future propelled him forward as he drew upon his extensive background in mortgage lending from 2003 to 2010. He deliberately leveraged that experience and explored opportunities within the mortgage lending industry. He faced numerous obstacles, including a lack of managerial support, limited program options, a shortage of leads, inadequate training or technology, and unhealthy work culture. This toxic environment was an industry-wide issue, contributing to a high turnover rate and low production among loan officers.

Stratton Equities was born as a response to these challenges. Mikhail’s vision was to overhaul the methods used by the mortgage lending industry by incorporating more programs and generating an influx of organic inbound leads. Mikhail achieved remarkable success, making $1.3 million within six months of launching the company.

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Due to Mikhail’s unwavering dedication to delivering exceptional service and driving success, Stratton Equities is a leading player in the private money and NON-QM mortgage lending industry. With its customer-first approach, state-of-the-art technology, and extensive expertise, Stratton Equities has expanded its market reach and aims to achieve an impressive target of $1.2 billion in closed loan volume annually, or $100 million monthly.

Reflecting on the milestone, Mikhail commented, “As we celebrate, I am humbled and grateful for the incredible journey we have embarked upon. It has been a testament to our unwavering commitment, relentless dedication, and the trust our clients and partners place in us. This milestone is a celebration of our accomplishments and a reflection of the transformative power of perseverance and innovation in the lending industry. We have expanded our reach, refined our strategies, and surpassed expectations each year. As we look back on our journey, we are energized by the opportunities that lie ahead. Together, we will continue to shape the future of real estate financing and empower dreams. This is only the beginning, and the best is yet to come.”

One of the many successes that Mikhail created for Stratton Equities is the unique programs, lead generation model, and loan portfolio milestones. Mikhail has revolutionized lead generation and digital marketing with his innovative platform at Stratton Equities. Unlike traditional private money lenders relying on loan officers to hunt for leads through cold calls and networking, Mikhail’s system brings leads to the company daily, eliminating manual prospecting. This powerful tool generates an abundance of organic leads, surpassing the strategies of other private money-lending companies and propelling the company’s performance while enabling aggressive hiring.

Moreover, Mikhail’s platform provides loan officers with access to the largest collection of nationwide private money and NON-QM mortgage loan programs. This comprehensive offering allows them to effectively cater to the needs of real estate investors, entrepreneurs, and diverse mortgage borrowers.

Stratton Equities has received recognition within the industry for its exceptional services and expertise, as well as for Mikhail’s success. In 2021, Forbes Magazine included Mikhail in their “The Next 1000” list, celebrating individuals redefining what it means to build and run businesses today. NJBIZ, New Jersey’s leading business journal, also recognized Stratton Equities as one of the Top 250 Privately Held Companies for 2021. They further honored Mikhail as one of their 2022 Leaders in Finance, and he was nominated for the prestigious Ernst & Young Entrepreneur of the Year program.

Stratton Equities consistently achieves high levels of customer satisfaction. Through its commitment to providing personalized solutions and exceptional customer service, the company has built a strong reputation for its client-centric approach. Many clients have praised Stratton Equities for its outstanding service, professionalism, and ability to secure funding quickly. One client, John S., commended the company for its efficient processing and dedication to finding the best loan options, expressing gratitude for their personalized approach that ensured his unique needs were met. Another client, Sarah L., emphasized the team’s expertise in navigating complex financial situations, stating that Stratton Equities provided her with the guidance and support needed to secure a loan for her real estate investment. These testimonials and many more highlight the company’s commitment to client satisfaction and its track record of delivering outstanding results.

In addition to client testimonials, Stratton Equities has received positive feedback on reputable platforms such as Indeed and Glassdoor. Several employees have shared their experiences working for the company, consistently praising the supportive and collaborative work environment and highlighting the company’s dedication to fostering professional growth and providing ample opportunities for career advancement. Employees also speak highly of the company’s management, describing them as knowledgeable, approachable, and committed to the team’s and clients’ success. This positive employee feedback further supports the notion that Stratton Equities excels in serving its clients and maintains a workplace culture that values and nurtures its employees.

Mikhail’s visionary leadership and persistent commitment have solidified Stratton Equities’ position as a trusted and innovative company with high expertise, cutting-edge technology, and a customer-centric approach.

For more information about Stratton Equities, please visit their website at https://www.strattonequities.com. Follow Stratton Equities on social media on Instagram, Facebook, and YouTube @StrattonEquities, LinkedIn @stratton-equities, and Twitter @Strattonequity.

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Michael Mikhail, CEO Stratton Equities

Michael Mikhail is the Founder and CEO of Stratton Equities, the nation’s leading hard money-lender to national real estate investors, with the largest variety of mortgage loans and programs nationwide.

Having launched Stratton Equities in early 2017, Michael has always been an entrepreneur and innovator in the real estate market, purchasing his first home at 19.

A serial entrepreneur with a foresight for business opportunities, Michael had a slew of small businesses prior to launching Stratton Equities. One of his most prolific ventures was a car wash connected to a gym he was affiliated with in Florida during 2001-2002 while attending college.

It wasn’t until he graduated from Florida State University with a degree in Business, that he officially joined the mortgage industry in 2003 and decided to travel to explore his options globally.

After travelling to 19 countries in 5 years, Michael knew two things; he wanted to start his own business and launch it in the United States. He knew that moving back to the states was the best place he could start something small and grow it into something infinite.

In 2017, Michael noticed how the mortgage industry had transformed after the regulations presented from 2008-2012, and knew it was time to set out something on his own, thus creating Stratton Equities.

Under Michael’s leadership, Stratton Equities has grown into one of the biggest leaders in the Mortgage and Real Estate industry across genres and platforms.

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Mortgage Rates Continue to Increase

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MCLEAN, Va., May 25, 2023  — Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey (PMMS), showing the 30-year fixed-rate mortgage (FRM) averaged 6.57 percent.

“The U.S. economy is showing continued resilience which, combined with debt ceiling concerns, led to higher mortgage rates this week,” said Sam Khater, Freddie Mac’s Chief Economist. “Dampened affordability remains an issue for interested homebuyers and homeowners seem unwilling to lose their low rate and put their home on the market. If this predicament continues to limit supply, it could open up an opportunity for builders to help address the country’s housing shortage.”

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News Facts

  • 30-year fixed-rate mortgage averaged 6.57 percent as of May 25, 2023, up from last week when it averaged 6.39 percent. A year ago at this time, the 30-year FRM averaged 5.10 percent.
  • 15-year fixed-rate mortgage averaged 5.97 percent, up from last week when it averaged 5.75 percent. A year ago at this time, the 15-year FRM averaged 4.31 percent.

The PMMS is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit.

For more information, view the Frequently Asked Questions on Freddie Mac’s main website.

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Stratton Equities is Hiring Mortgage Loan Officers to Join Their Dynamic New Jersey Team and Build a Lucrative Career in the Mortgage Industry

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Stratton Equities is looking for loan officers who are ready to say “Yes” more and to work with a company that’s invested in their success.

Parsippany, NJ – Stratton Equities, the Leading Nationwide Private Money & NON-QM Mortgage Lender, is excited to announce that they are seeking experienced Mortgage Loan Officers to join their headquarters in New Jersey.

This is an incredible opportunity for skilled professionals who want to work with a company that guarantees abundant direct organic daily leads, hands-on management training and support, niche mortgage loan programs with competitive pricing, and advanced mortgage technology.

Mortgage Loan Officers can expect to close their first loan within four to six weeks after the completion of their initial training.

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Mortgage Loan Officers who join the Stratton Equities team can expect the following:

  • Stratton Equities provides Mortgage Loan Officers with inbound organic daily leads from borrowers who call or apply directly to their offices inquiring about a mortgage. Not the other way around.
  • Competitive compensation: Stratton Equities offers a highly competitive compensation plan, potentially allowing Mortgage Loan Officers to earn their first year $110,086.26 – $190,677.36.
  • Robust support: Stratton Equities provides Mortgage Loan Officers access to the most extensive library of nationwide private money and NON-QM mortgage loan programs under one roof. This gives multiple solutions to offer borrowers, allowing Mortgage Loan Officers to say “YES” more.
  • Strong resources: Stratton Equities’ interest rates are some of the lowest nationwide in private lending, starting at 6.75%, and can pre-approve a loan in 24 hours.
  • Room for growth: As a rapidly growing company, Stratton Equities offers ample opportunities for advancement and career growth. With a focus on promoting from within, Mortgage Loan Officers who join the team will have the chance to take on new challenges and responsibilities as they progress in their careers.
  • A dynamic work environment: At Stratton Equities, Mortgage Loan Officers will work in a fast-paced, dynamic environment focused on innovation and results. As a part of the loan officer team, you can work directly with prospective real estate investors, entrepreneurs, and borrowers on their real estate endeavors.

If you are an experienced Mortgage Loan Officer looking for an exciting new opportunity to grow your career or a licensed Mortgage Loan Originator that is new to the industry and needs help finding business, then Stratton Equities is the place for you to earn a great income.

This is an incredible opportunity to join a leading nationwide mortgage lender and build a bright future with a company that values its employees and their contributions.

For more information about Stratton Equities, please visit https://www.strattonequities.com.

To apply for a position with Stratton Equities, please visit their careers website at https://www.loanofficerscareers.com. Or you can email a resume to [email protected].

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A 33-to-1 Vacant & Distressed Home-to-Listed Home Ratio

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By Rick Tobin

Why are you just searching for listed properties for sale when the number of distressed, vacant, and “shadow inventory” homes is almost 33 times larger than the national home listing inventory supply?

How is this possible with my 33 number claim? First, upwards of 16 million homes were listed as “vacant” or shadow inventory in the fourth quarter of 2022, as per the U.S. Census Bureau, National Association of Realtors (NAR), and other groups. A vacant home can be defined as a vacation home, unsold new home building inventory (near record levels of new single-family homes and multifamily apartment buildings being built in 2023), distressed or pre-foreclosure properties, or homes held by billion-dollar corporations like BlackRock, Blackstone, or State Street for the long-term that just sit there with no intent to rent it out at present.

Second, there are at least a few million distressed mortgages (FHA loans, especially) currently in forbearance agreements in order to delay the lender’s foreclosure filing actions to bring the total to more than 18.5 million properties. Frankly, I think that the number is closer to 20 million after counting VA, conforming, non-QM, and private money loans, but we’ll just focus on the 18.5 million vacant or distressed home number.

Since 1934, FHA (Federal Housing Administration) has insured more than 40 million loans nationwide. Today, a relatively high percentage of homebuyers still rely upon FHA to purchase their homes partly due to the much lower interest rates and easier loan qualification guidelines such as loan programs which allow FICO credit scores as low as 500, debt-to-income (DTI) ratios up to 50% or higher, and loan-to-value (LTV) options near 96.5% to 100% LTV.

As of March 2023, the national home listing inventory was listed at 562,565 by data provided by the Federal Reserve Economic Data and the NAR. Let’s do the math as follows:

18.5 million distressed or vacant homes / 562,565 listed homes = 32.885 times

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Distressed FHA Loans & Continued Forbearance Extensions

There are three to four times as many delinquent FHA mortgage loans nationwide as compared to the entire national home listing inventory with somewhere near at least a few million distressed FHA loans.

February 8, 2023: Today, the U.S. Department of Housing and Urban Development (HUD) Secretary Marcia L. Fudge announced that, thanks to Federal Housing Administration (FHA) programs, approximately 2 million homeowners with FHA mortgages were able to stay in their homes from the beginning of the COVID-19 pandemic in March 2020 through December 2022 – when doing so was often a matter of life and death. During this period of time amid the pandemic, FHA borrowers whose ability to make their mortgage payments was impaired by the pandemic were able to obtain either a COVID-19 forbearance or a more permanent solution such as a loan modification that allowed them to avoid foreclosure.
Source: HUD Secretary Announces Major Milestone of Assisting Nearly 2 Million Homeowners Stay in their Homes

With a few million distressed FHA loans that they admit to and is probably undercounted, it’s no wonder why the federal government wants to keep offering FHA forbearance extensions.

Details of FHA’s COVID-19 Forbearance

Important information about FHA’s COVID-19 Forbearance:

To be eligible for the COVID-19 Forbearance or forbearance extension in the table above, you must request this relief from your servicer on or before May 31, 2023.

You can request a FHA COVID-19 Forbearance for up to 6 months. If needed, an additional 6 month extension may be requested. If you began your initial forbearance on or after October 1, 2021, you are only eligible for the additional 6 months if your initial 6 months forbearance will be exhausted and expires on or before May 31, 2023.

Additional forbearance options may be available to you after May 31, 2023. Your mortgage servicer may provide for a temporary pause or reduce your monthly mortgage payments to allow you time to overcome your financial hardship. An extended forbearance period may be provided to you if you are unemployed and actively seeking employment.

No extra fees, penalties, or interest will be added to your account during the forbearance period.

Source: U.S. Department of Housing and Urban Development (HUD)

There are also a significant number of distressed VA and conforming or conventional loans nationwide which are held by Fannie Mae or Freddie Mac in the secondary market that aren’t really being “officially” counted with the most up to date numbers. FHA and VA mortgage loans have both consistently represented close to 10% each of the annual national funded loan market. As a result, these government-backed or insured loans, which typically average close to 0% to 3.5% down payments for FHA, VA, and conforming, are something to keep a close eye on as the economy continues to soften.

The 40-Year Loan Modification Program for FHA Borrowers

Good news: National mortgage delinquency rates dropped 15% in March 2023 while reaching 2.92%, which was a new all-time record low.

Bad news: Millions of distressed mortgages are not being counted as “delinquent” once they enter forbearance agreements with their lender (FHA loans, especially). The national FHA loan default rate reached 12% in February and will likely continue to rapidly increase. Distressed FHA and VA loan investments are some of the best deals out there because they usually have the lowest mortgage rates that you can take over by way of creative seller-financing techniques.

A forbearance agreement is when the lender or mortgage loan servicing company agrees to postpone or delay their foreclosure actions with the delinquent borrower. Sometimes, these foreclosure postponements may last months or years.

On March 8, 2023, HUD issued their Mortgagee Letter 2023-06 with details described as the “Establishment of the 40-Year Loan Modification Loss Mitigation Option” with a stated purpose noted as “This Mortgagee Letter (ML) establishes the 40-year standalone Loan Modification into FHA COVID-19 Loss Mitigation policies.”

Several mainstream media analysts mistakenly described this new 40-year loan proposal offered by FHA as a purchase loan as well. Yet, this is not correct because it’s only for the refinance of currently distressed 30-year FHA loans into longer 40-year loan terms in order to reduce the monthly payments for borrowers. There is no published word about whether FHA will later consider offering 40-year purchase loans for borrower prospects.

Housing and Family Trends

Real estate is a people business, first and foremost. The #1 most important factor for housing trends is related to population trends and household formations for families especially. Without people, there’s no need for housing regardless of the affordable financing offered.

One of the main reasons why people purchase single-family homes is because they’re trying to either build a growing family or the need to house two or three generations of the family under the same roof. You can’t spell “single-family homes” without family in it.

The U.S. has the highest percentage of one-person households in the entire world. A few years ago, one-person households surpassed all other household formations in Canada.

In 2022, only 24% of U.S. households had at least one child under the age of 18. In 1965, upwards of 42% of households had a child under the age of 18.

The Decline of Family Households

Here are some of the published data numbers from sources such as the U.S. Census Bureau, the National Center for Health Statistics (NCHS), Pew Research, and numerous other data sources in regard to individuals and family structure trends:

  • National overall divorce rate in the USA: 50%+.
  • The California divorce rate is 60%.
  • The Orange County, California divorce rate is 72%.
  • 41% of first marriages nationwide end in divorce.
  • 60% of second marriages end in divorce.
  • 73% of third marriages end in divorce.
  • The average length of a marriage in the U.S. that ends in divorce is 8 years.
  • There is one divorce every 36 seconds in the U.S. on average; 2,400 divorces per day; 16,800 divorces per week; and 800,000 to 900,000 divorces per year.
  • The percentage of American men between the ages of 20 and 39 who are now married has fallen by half (35% of men are married as of 2017) since the early 1970s (70% of men were married).
  • Unmarried parents who live together are more likely to break up than married parents, per the Brookings Institute.
  • Per the CDC in 2016 through at least 2020, U.S. fertility rates were the lowest ever recorded as fewer couples are having children these days. Each consecutive year over the past five or six years reached all-time record lows.
  • 78% of all households in the U.S. contained one married couple in 1950. Today, married households are below 48%.
  • In 2010, the Pew Research Center reported that 44% of Americans polled in the 18-to-29 year old age range believed that “marriage was becoming obsolete.”
  • Divorce rates for people over the age of 50 have doubled between 1990 and 2015, per Pew Research Center.
  • In 1956, roughly 5% of all babies were born to unwed mothers. Between 2008 and 2016, babies born to unwed mothers were closer to the 40% range.
  • Upwards of 50% of children in impoverished regions of the U.S. live in homes without fathers.
  • 46% of children live at home with a mother and father who were in their first marriage together.
  • The average American woman in 1970 had her first child at 21.4 years of age. Today, the woman is near 25.6 years of age.
  • The U.S. has the highest teen pregnancy rate in the industrialized world.
  • More than 50% of children are born to unmarried women under the age of 30.

Saving Equity or Creating Newfound Wealth

What are your options as either a homeowner with an ongoing forbearance agreement in place with your lender, a struggling business owner, a commercial property owner and landlord with incredibly high vacancy rates, or as an investor seeking new opportunities if and when the economy suddenly pivots and we enter a more clearly visible deeper recession? If home values are more likely to be higher today than later this year, is it now a good time to sell? If so, where will be your next destination for a home?

Generally, loss of income is the #1 reason why homeowners lose their homes to lenders or mortgage loan service companies in foreclosure. The #2 reason why homeowners walk away from their home is when the mortgage debt exceeds the current market value and it’s upside-down or underwater. This is when short sale options become more prevalent.

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The real risk associated with homes purchased in recent years is related to the relatively low down payment averages for first-time buyers and others that were leveraged between 96.5% and 100% loan-to-value at the close of escrow. Effectively, these homebuyers were upside-down with negative equity at closing when factoring in the potential 6% to 8% closing costs to resell the homes after paying real estate brokerage commissions, title, escrow or attorney’s fees, transfer taxes, third-party inspection reports, and possible seller credits towards the buyer’s closing costs.

In 2022, first-time homebuyers represented 34% of all home purchases across the nation, as per the NAR. During the fourth quarter of 2022, purchase loans comprised 78.6% of all FHA mortgages funded. With a high percentage of FHA borrowers reported as first-time homebuyers, their average down payments were likely close to 3.5% or below. What happens if home values fall 5%, 10%, or more in value over the next year?

If you’re currently in a distressed mortgage situation as a homeowner or investor or are searching for discounted off-market listings as a buyer with very creative and flexible financing solutions, I can show you effective ways to save your equity or create newfound wealth with my mortgage and investment business named Realloans (Real Estate Loans and Creative Sales) and my real estate group linked here: So-Cal Real Estate Investors.

Rick Tobin

Rick Tobin has worked in the real estate, financial, investment, and writing fields for the past 30+ years. He’s held eight (8) different real estate, securities, and mortgage brokerage licenses to date and is a graduate of the University of Southern California. He provides creative residential and commercial mortgage solutions for clients across the nation. He’s also written college textbooks and real estate licensing courses in most states for the two largest real estate publishers in the nation; the oldest real estate school in California; and the first online real estate school in California. Please visit his website at Realloans.com for financing options and his new investment group at So-Cal Real Estate Investors for more details. 

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