The Mortgage Bazaar Revisited
Commercial and Residential Lending Made Simpler
BY NIZAR A MOTANI, Ph.D
Since we last visited the mortgage bazaar in July 2002 it has undergone a drastic transformation. In the past three years lenders have recognized the changing profiles of borrowers and have accordingly created new products or have modified existing ones. They have done this to take advantage of the large market represented by non-permanent resident aliens (NPRAs) holding various types of visas, and credit-impaired permanent resident aliens (PRAs/GREEN CARD HOLDERS) and citizens alike.
Generally, acceptance of lower scores, lower down payment and lack of permanent resident status has enabled greater numbers of previously marginalized borrowers to become business owners as well as homeowners.
Let us first review the commercial arena. In addition to SBA and traditional bank financing there were only "hard money" lenders. This gap has been filled by intermediate lenders. Such lenders have flexible credit score and down payment requirements. Much depends on whether the transaction ? be it purchase or cash out refinancing ? is with or without real estate. Previously transactions without commercial real estate were both difficult and severely restricted; now the guidelines have been relaxed and modified.
These intermediate lenders offer NO INCOME, NO ASSET verification loans. The closing cost is lower and closings take much less time. The rate of course is higher than SBA and bank loans. The purpose of intermediate loans is to access capital with hardly any documentation. No 4506 required! Moreover such loans are assumable!
Those already in business for at least one year can obtain an unsecured business line of credit up to $50,000 by simply stating their income and having a 660 personal (Equifax) score and 165 business score. Furthermore, this is not reflected on their personal credit history. With two years of strong financial statements, the line of credit could be as high as $150,000. The emphasis is placed on the scores as well as the type of business or profession, and cash flow.
In the residential arena the biggest change has been in loan size and borrowers' legal status. The conforming loan limit has increased to $359,650. A host of ZERO DOWN products have been unveiled to suit the borrowers' overall profile. The previously shunned NPRAs are now treated on the same basis as PRAs and citizens, provided they have a two year credit, rental and employment history in this country. One would expect that a NPRA borrower getting a no down payment, no mortgage insurance, no income verification, interest only loan would be overjoyed at this generous basket of goodies from more and more lenders. Apparently not! Recently one such borrower wanted the lender to accept his mortgage payment on a cash back reward credit card and waive escrows without any charge!
One product that has continued is the 90% loan to a 700 plus score borrower who does not have to verify the length of employment or self-employment. These are the sublime (brahmin) borrowers. For the subprime (other castes) there is a dizzying array of products to choose from. Even scores below 580 are considered.
In conclusion, almost anyone with an unexpired visa (excluding tourists) and sufficient credit/rental/ employment history and minimum credit score, can become a homeowner without a down payment and pay interest only, up to 5 or 10 years. One note of caution: products and guidelines change without notice from the lenders. So don't wait to buy or refinance!
[Nizar "the mortgagewala" Motani is a Senior Loan Officer with United Service Financial Corp in Stone Mountain, Georgia. He was born in Uganda, educated in Kenya (BA University of Nairobi) and England (Ph.D. University of London). In the United States he has been involved in academic and financial fields. He can be reached at 770 925 9874 or Amotani@aol.com.]
Moneywise is hosted by Rajesh Jyotishi with Shalin Financial Services, Inc.
An Investment Advisor Representative of FSC Securities corporation. A Registered Broker Dealer. Member of NASD/SIPC. For questions he can be reached at 770-451-1932, ext. 101
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