Private-Money Mortgages Get More Popular
Hard-money or private-money mortgages, which are funded by individual investors or investor groups, are gaining popularity now that subprime financing has dried up and prime lenders have tightened their credit standards.

Miami-based Yale Mortgage Co., for instance, reports a 30-percent increase in applications from last year; while a 50-percent gain has been recorded by Aliso Viego, Calif.-based Alliance Portfolio.

Scotsman Guide mortgage-industry analyst Daniel Yeh notes that “hard-money lenders are pretty much the only source of capital for many people,” primarily borrowers with poor credit but plenty of equity, those in need of construction loans, and those wishing to buy a home or refinance quickly.

While they do not place much emphasis on income or credit, hard-money lenders generally require 30 percent to 40 percent equity in the borrower’s collateral, charge fees as high as 5 percent, and impose interest rates slightly above 10 percent.

However, Yale Mortgage principle Woody Kahn notes that the delinquency rate for such mortgages hovers between 35 percent and 40 percent, while foreclosures typically range between 10 percent and 15 percent of such loans.

Source: The Wall Street Journal, Jeff D. Opdyke (12/05/07)

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