MReport November 2018

TheMReport — News and strategies for the evolving mortgage marketplace.

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26 | TH E M R EP O RT FEATURE For investor loans on rented property, expect a fairly thor- ough underwriting process and a funding timeline of several weeks, once all due diligence has been supplied to the lender. Also, be prepared that most lenders specializing in this market prefer to make loans on portfolios of properties, rather than on a single investor-owned home. It can be challenging to get attention for an investor loan of less than $1 million, because of the specialized skills and resources required to underwrite such loans. Delving into Private- Money Loans F or borrowers requiring quicker funding and maximum flex- ibility, private lenders likely offer the best solution. These loans feature higher rates than either owner-occupied loans or rental property loans. However, they can typically fund in a couple of weeks vs. months, and under- writing is usually much more streamlined. Also, borrowers need not have rental income in place at the time of requesting this type of loan. If the borrower plans to make renovations to the property, private-money loans often feature draw-based funding to finance such renovations. Private lending has evolved a great deal since the Great Recession, and there have never been more options. Sometimes referred to as "hard-money loans," private-money loans now feature lower rates and origination fees than in the past, when double-digit interest rates were common. Rates vary by region, but in California rates in the 7s and 8s are currently fairly common. Also, some private lenders allow higher leverage of 70-80 percent vs. leverage of 50-70 percent, which is s usual for the other loan types. While in the past private-money loans were the do- main of local hard-money lenders and mortgage brokers, today there are many highly professional funds which can underwrite, fund, and service such loans. One option for foreign buyers is to close on a property using a private-money loan, and then to refinance into a lower-cost mort- gage later. While the borrower will incur slightly higher transaction fees, this also allows for the foreign investor to separate the process into two distinct phases, make improvements as needed, and get the property rented before obtain- ing permanent financing. Because private-money loans are often used for a year or so, they are some- times called "bridge loans." They act as a bridge until the borrower can obtain a lower-cost multiyear or "permanent" loan. Learning from Experience M ichelle Mollura, Regional Branch Manager at RMP Mortgage based in Palos Verdes Estates, has noticed a few patterns with her foreign national bor- rower clients and their agents. "Foreign nationals often prefer to work with an agent and/or loan advisor who is from their country of origin or who speaks their lan- guage fluently," Mollura shared. Mollura has also noticed a pat- tern of foreign nationals work- ing with banks from their home country that also have branches in the U.S. Even if these banks do not have the most competi- tive products or require extensive deposits, some borrowers do not know that they have options. She mentioned that some banks require 24 months' worth of mortgage payments on deposit to extend a loan. Mollura mentioned one challenge she has seen in her experience is that a foreign na- tional borrower will move to the U.S. and start new employment in the U.S. and then shortly there- after apply for a home loan. This can cause a borrower to become disqualified from receiving certain products aimed at foreign nation- als. Once a borrower is living and earning their income in the U.S., the lender must verify the borrower's legal residency status and qualification since the loan is based upon the new employment which may or may not be eligible for a period. If a foreign national borrower applies for a home loan for an investment property or a second home while living abroad and earning income abroad, they can qualify based on their foreign income, foreign credit activity, and foreign bank accounts. Finally, the U.S. Treasury has placed sanctions on certain non-U.S. individuals that include prohibiting lenders from provid- ing them with financing. The Treasury's Office of Foreign Assets Control operates a website where lenders can check whether a particular person is subject to these sanctions. Experienced mortgage-loan originators also recommend doing a Google search of the potential borrower, including the borrow- er's country of origin as part of the keyword. This may uncover relevant information such as news stories from the person's home country. By researching the data on how foreign homebuyers are impacting your market, as well as gaining insights from professionals who are well versed in this segment, you too can expand your business scope to this valuable customer base. JAN BRZESKI is Managing Director and Chief Investment Officer of Arixa Capital, based in Los Angeles. Arixa Capital is one of California's leading nonbank lenders, focused on bridge and renovation loans to investors and developers who purchase and redevelop residential properties in the Western U.S. "State and federal consumer protection laws apply to loans to foreigners, so don't lower your guard." —Dennis Doss, California-based lawyer specializing in mortgage lending

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