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Helping today's borrowers
Today's market is driven by a potential increase in interest rates, adjustment of interest-only and pay-option ARMs and the sheer volume of mortgages. Hard-money lending should be viewed as a viable alternative to foreclosure.
In the past, many brokers may have been hesitant to enter this market because of its perceived risk. But the bottom line is that hard-money borrowers are not necessarily risky. It's more likely that they have faced extenuating circumstances and need an alternative to help them get back on their feet.
Hard money can help borrowers remain in their homes and preserve their hard-earned equity. And the rates are competitive, often comparable to nonprime products.
The loans are designed to help borrowers correct issues such as medical debt, repair their credit and then refinance into a nonprime or conforming product. For savvy brokers, this provides an opportunity to earn customers for life and close several loans from one borrower in a two- to three-year period.
Turning to hard money
Hard-money loans are not as risky as most people believe. In fact, with lower loan-to-value (LTV) ratios, these loans often are conservative with maximum LTVs of 70 percent. And most lenders would not be in the hard-equity market if they did not expect these loans to be successful.
Brokers should look for a hard-equity lender that has reasonable LTV ratios, as well as a proven track record and experienced underwriters to mitigate risk effectively.
Hard-money loans are based on the valuation of the property, which means that hard-money lenders spend much of their time assessing property value. They do this through more than one vehicle, including automated valuation models, broker price opinions, in-house reviews and state-certified appraisals. A large component of a hard-money lender's success is its ability to have a superior valuation system.
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