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Special Reports
Hard Money
Subprime Woes Helping HM? These Execs Say No
By Brad Finkelstein
You might think that because of the problems with the subprime mortgage industry,
hard money lenders are benefiting with increased business.
But, in fact, according to two long-term veterans of this sector, no matter whether
the loan is for owner-occupied residential, investor residential or commercial properties, the same forces that
have driven the money suppliers out of the more traditional lending markets are having a negative effect on hard
money lending as well.
The primary consideration for a hard money loan is the equity in the property.
But, said Martin Hymowitz of Mortgage Wholesalers of Florida, Plantation, Fla., because property values have dropped
so rapidly, his investors have become skittish.
Kevin Clark of Clark Capital Group LLC, Old Tappan, N.J., said he has seen some
investors go to the sidelines during this crisis, while others are exiting the field completely.
Hard money lenders work off of the property's loan-to-value ratio. Typically,
a hard equity loan would have an LTV as low as 50%. Falling property values have brought LTV's up to the 80% area.
With values not having stabilized, Mr. Hymowitz said, investors are not seeing
any reason to make their funds available to companies like his.
Hard money lenders like his company have no place to go, he said, and the news
about the economy is not making investors less reticent about participating in the market.
He has spent 28 years in the hard money lending business and called the current
situation "totally unusual" for the sector. Mr. Clark agreed, adding he was surprised by the tightness
in the market. Many thought hard money lenders would be feasting as their competition in the subprime side went
out of business.
There is hardly any money available for land development deals, Mr. Clark said.
He pointed out that in the past 90 days, he has seen land developers who need a total of $102 million in financing
looking for help, but they cannot be helped. For those seeking hard money loans for owner-occupied properties,
that market is "completely dead" right now, Mr. Clark said, and only slightly better for those seeking
funds for residential investor and commercial properties. On the owner-occupied side, hard money has traditionally
been the last refuge for those who need funds to avoid foreclosure. But now, Mr. Hymowitz said he is finding that
there are no funds available for these loans.
He has not made any new originations in several months, and for the loans he did
do, he is caught between borrowers who are behind on their payments and investors who want their money back. The
problem has gone from a small number of loans to where 80% of the portfolio is in foreclosure.
As a result, he is in the process of winding down his business.
It is not just Mr. Hymowitz; other players like Tribeca Funding, Mr. Clark noted,
have also been forced to abandon hard money loan originations.
For things to turn around, hard money investors are waiting for the same thing
their more traditional counterparts are. They are waiting for the decline in property values to hit rock bottom
before loosening the purse strings.
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