Here is a video that pretty much sums it up. No balloons on homeowner loans and even worse private mortgage investors are running scared in fear of lawsuits or fines. Some of the best quality loans to fund are for owner occupants making a large down payment or taking a small loan on a free and clear property.
It is still possible to make these loans through a good mortgage broker that knows the rules. You should not fund these directly to homeowners unless you have an attorney or mortgage broker doing the underwriting, disclosures, and closing documents. Many private lenders are don’t want their funds tied up for more than 5-7 years.
In reality homeowners even if given a 25 to 30 year fully amortizing loan at a “high cost” interest rate will find a way to pay these loans off in cash or by refinancing in three years or so to save money on interest rates. But as an investor you ask what if they don’t? I don’t want this loan for 25-30 years. The balloons motivate borrowers to get their situation fixed and refinance or save up and pay off in cash within a few years. This is my argument when trying to convince investors not to pull out and move to stocks or other investments.
Fear of a lawsuit or problems with the government just because you make a loan to an owner occupant.
I never have a good argument for this. I just advise to make sure there are no prepayment penalties, no balloons, a reduced 4% late fee, borrower signed loan disclosures. It just should not be this way the CFPB should issue and exemption to small private lenders. Private lending has been around since there was money and real estate. There have been times in our economy when the only way to get a loan was
Who is the this hurting the most?
Investors unable to find a safe secure lending opportunities?
Self employed homeowners who typically do not meet bank guidelines?
Poor mortgage brokers who built a business on helping people (borrowers) no one else (banks) want to work with?
It hurts the homeowners and home buyers with small loans who have been able to save 40% for a down payment, who have been able to pay all cash for a home and now need to borrow a little for _____ their business or some other purpose that a small loan will help make their lives better.