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Special Reports
Hard Money
'Tight B&C Driving Borrowers to Hard Money'
By Jennifer Harmon
The tight market for subprime loans is driving more borrowers toward hard money,
according to Greg Bowcott, CEO of Bowcott and Associates, here. (Mr. Bowcott is a consultant and longtime lending
executive with Citi, Wells and others, specializing in subprime.)
Because of the lack of liquidity in the market for subprime/alt-A loans, he says
so-called "hard money" loans are regaining popularity. "These borrowers might otherwise qualify
for what used to be called 'mainstream subprime,' but since that largely is nonexistent at the moment, they are
forced to find other alternatives," Mr. Bowcott told Origination News. "Hard money loans serve that purpose,
but at a considerable price. There is a significant pent-up demand for subprime at the moment, and if the capital
markets system can recover enough to attract investors for subprime securities once more, there are very attractive
yields available to them," he said.
He said subprime lending was safe and stable for years until lending standards
became too lax, "and hard money lenders are reaping the benefits now, at the expense of desperate consumers."
An industry that was formed long before the organized subprime market, the hard money lender has roots back to
the '50s, said Mr. Bowcott. "Most notable, at least on the West Coast, was Aames Home Loans in California."
According to Mr. Bowcott, the investors were and still often are private individuals,
collectively referred to as "private money," attracted because of the high yields, high points and relatively
low risk because of the low loan to values involved. "In today's market of declining values, of course, even
lower [LTVs] are permitted in affected areas." Hard money loans are underwritten deal-by-deal, he said. There
are no hard rules but the following characteristics are common: Low LTVs, rarely exceeding 65-75%, no FICO scores
required, properties must be in good condition, some lenders consider small commercial and lot loans at lower LTVs,
foreclosures are OK, loans are $250,000 to $2 million, rates are often from 11% and up, and most of the loans are
interest only for 3-5 years. Loans are collateral-based, he added. Most are arranged by a middleman lender, typically
a specialist in these loans and often an expert in local real estate. They can be small commercial or residential.
In Scottsdale, Ariz., a newly released website allows commercial/residential loan
brokers access to unlimited programs and products through Transcend Financial's nationwide network of commercial
and residential lenders and private money institutions. "It's a unique platform that ... brings a wide variety
of products under one roof for simple loan placement," said Scott MacDonald, senior managing partner, TF.
TF is able to provide this service because of its network of AEs who work for direct lenders and private money
institutions nationwide. They offer commercial, residential, hard money, construction, and acquisition and development
loans. Cross-collateralization is available, as well as loans from $150,000-$5 million. There are no balloon payments
for residential hard money loans. All available loan programs can be viewed online at http://www.TranscendFinancial.net.
Peachtree Financial, Atlanta, Ga., provides a private financing alternative to
borrowers, which enables them to seize new opportunities and add value to their existing projects. This one-stop
financing is best suited for special situations where the client is short on time and capital. The company says
its hands-on approach, simplified approval process and quick response time, sets it apart from conventional funding
sources. Peachtree Financial makes hard money loans at conservative loan-to-value ratios.
Examples include quick closings, distressed debt or partnership buyouts, bankruptcy
loans, borrower background issues, and land loans with solid exit strategies. The company says it offers a minimum
one year term and rates begin in the low teens.
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