I read your article on portfolio lending and I couldn’t agree with you more about Fannie Mae. In fact, it isn’t just the residential market they’re messing up, it’s the multi-family market as well. I have been a real estate investor for over 15 years. I have been an investor in multi-family, namely apartment communities. I’m writing to you because I’d like to share our horror story with Fannie Mae and how true your words are about how inflexible and unreasonable they are.

I own a 160 unit apartment complex in the Dallas, Texas area with two other business partners. After a rough start, the property is operating fine now. In fact, last year it yielded a $322,000 NOI. Mind you, we bought this property for $3.2M at a cap rate of 9%, so we’ve done well. After financing, it returned $74,000, which we put back into the property.

The horror story starts last month. You see, Fannie Mae bought our loan from our original lender. Recently, they performed what they called a “Physical Needs Assessment” inspection. It’s completely based on the opinion of the inspector they hire. Then, they generated a report of items they believe should be fixed. This report has nothing to do with the realities of running a property. Cosmetic items are listed as “immediate needs” with price tags of $10,000 and up.

Now, Fannie Mae being Fannie Mae, a.k.a. unreasonable, decides to start foreclosure BEFORE any warnings and then notify us AFTERWARDS we have 30 days to put $140,000 into a repair escrow or else we lose the property. All this because we put our money toward more important things related to running a property, rather than their list in their report. Our negotiations with them only managed to lower this amount to $75,000 but they are still inflexible.

We are now in the process of looking for an investor that will invest some capital in return for a percentage of the property. The investor will stand to make a high return in a short time if we get our re-financing approved, or they have the option of holding on to their share until we sell for a larger return. We anticipate at least a $1M profit because we are in the process of converting this property’s utilities, which will increase revenues by over $100,000 annually. However, in the meanwhile, we’re stuck with Fannie Mae messing up a good thing.

So there you have it, the horror story that is Fannie Mae. A perfectly great loan, a perfectly good property, and perfectly good investment being ruined by Fannie Mae. In our experience, we couldn’t agree with you more, Fannie Mae has done more harm than good for the investors in the real estate market.

There are a couple of lessons here for all of us. 1) Always make sure you have some cash reserves from private lenders/investors waiting in the wings on all holdings like this and 2) always develop a relationship with a portfolio lender BEFORE you need them. This craziness from Fannie happened quickly and had this investor had a portfolio lender relationship established in advance, he would have saved a great deal of heartache.

I’m dazed and confused, straighten me out here!  In your e-mails to me you keep reiterating that portfolio lenders exist out there that will allow the following:

–unlimited properties in my LLC’s.
–Blanket Mortgages.
–unlimited # of investor loans.
–immediate & unseasoned cash-out.

My broker tells me it’s just not so, that vesting title in LLC’s and Blanket Mortgages are a thing of the past. Now I have friends achieving some or all of these in states outside of Colorado.  My own reading of the rule is, you are still allowed 10 residential properties in your name. But after 4 you must put 25% down and have additional cash reserves. You can circumvent the LLC issue by utilizing a Trust Sandwich. WHATS THE REAL SCOOP!

While I think your Portfolio Loan Blueprint is a must have for survival, I can’t afford to make purchases in which the techniques are out dated—I mean the rules keep changing. Either there are Portfolio Lenders out there or not.

Maybe I should can my broker and hire you—are you still originating loans?

<<sigh>>

Here’s the real scoop… YES. Portfolio loans are out there. This guy even says that he knows people that are getting them. The problem is he’s relying on his broker. OF COURSE the broker is going to try and convince you that these things don’t exist because he CAN’T MAKE ANY MONEY ON THEM.

Brokers get paid two ways – charging you origination fees and getting yield spread premium (YSP) from the lender they sell your loan to. Portfolio lenders do NOT pay YSP to brokers.

And seriously that trust sandwich thing? Really? Isn’t the bottom line to get the loans off of your personal credit report? The very expensive and overrated trust sandwich does not accomplish that.

The bottom line is that if you want portfolio loans YOU have to do some work. You have to find them, contact them and present your deal to them. It’s a business loan and they expect you to act like a business person. That requires some knowledge on your part that the Portfolio Loan Blueprint provides.

This loan program bridges the financing between Hard Money and Conventional Financing and eliminates the 4-10 property limit.

For buy and hold investors – No Limit to number of properties:

30 Year Fixed Rate Loan – 85% of Appraised Value
Full doc
620 FICO (stated income available for 720+)
55% debt to income ratio
6 months reserves
1-4 units only

Minimum loan amount is $100,000

In some cases you can actually receive money back at closing.

Here is an example:

Purchase Price – $98,000
Appraised Value – $150,000
Cosmetic Repairs – $10,000
Loan Amount – $127,500
Est. Total Loan Cost – $11,475
Est. Cash at Closing – $18,000

This is great for a cosmetic rehab as the loan is based on current appraised value, not purchase price.

There are also loan programs available for 3-4 units, the self-employed investor and even a 75% refi for investors with equity in their properties.

This is Private Money Mortgage Financing.

For consideration, application or just more information please contact:

Kathy Gray
FCCI
817-228-4415
kathy@fccinvest.com

As you know by now, Freddie Mac and Fannie Mae announced that they are virtually denying all loans to real estate investors. They have come up with a whole bunch of new ridiculous rules including:

• Eliminating stated income loans to self-employed borrowers
• Reducing the maximum number of properties you are allowed to have financed to 4
• Eliminating cash out refinances if you have owned the property for less than 6 months
• Eliminating refinances if you have the property titles in an LLC

If you’re an Insights subscriber, you (hopefully) know by now that I think these rules are complete crap.

As a result of this, I have been letting investors in on a secret that I have been using for years – portfolio loans.

The portfolio loan strategy is one that I feel so passionate about, I have been visiting the REI forums answering financing questions about the new rules and educating real estate investors about the alternatives that are out there to conventional loans.

In doing so, a couple of *very* interesting things have happened.

GB Mortgage Terminates My Broker Approval

First, I received a call from a lender that I have done business with for a couple of years, GB Mortgage. GB is a Fannie Mae lender meaning they underwrite to Fannie rules and sell their loans into the secondary market. GB told me that they were terminating my broker approval.

Apparently, an underwriter got bored while she was underwriting a file one of my loan officers submitted and she Googled me. She found my ebook, Mortgage Secrets for Real Estate Investors and the forums where I regularly post.

According to GB, they suspect that what I am teaching real estate investors is suspicious and in their words “we don’t think anyone should be teaching investors how to get loans.”

I Get Flamed By Mortgage Brokers on the Discussion Boards

The second thing that has happened is a *wave* of backlash from my fellow mortgage brokers around the country.

And they’re mad because I am spilling the beans on portfolio loans.

Here’s the scoop on portfolio lenders – they don’t work with mortgage brokers like other lenders do.

When I (used to) send loans to GB Mortgage, I would get wholesale rates and they would charge zero origination or other loan fees. I charged 1% origination, a processing fee and it was a good deal for all since the rates that I passed on to my investor clients were cheaper than what they could get by going to GB Mortgage directly.

Portfolio lenders don’t have “wholesale” channels to accept third party originations. Sure, I work with a some great portfolio lenders that I can refer you to but if I actually broker the loan, you will get charged DOUBLE origination and processing.

Not a good deal, in my opinion.

Well, brokers are very protective of their territory I guess because here is one example of a “battle of the brokers.” This guy was mad because I shared that one of my Portfolio Loan Blueprint customers got a term sheet offered to refinance her properties into LLC loans at 5.5%.

I wrote:

Mortgage brokers can’t broker portfolio loans for investors. They don’t have wholesale channels so if a “mortgage professional” claims they can broker portfolio loans chances are good they are not being truthful. Unless they have negotiated a master loan commitment with a local lender but even then I would proceed with caution because you will probably be paying double origination.

This is obviously a touchy subject for mortgage brokers since we are being shut out by the conventional lenders and can’t profit on portfolio loans. But the misconception that portfolio loans have higher rates than conventional loans is forcing a lot of investors to stay in conventional loans instead of considering a portfolio refi strategy that would once again make them “financeable” in the eyes of Fannie and Freddie.

And one of the angry brokers replied:

Susan, The above statement is partially untrue. I have brokered plenty of my customers to local banks for lines of credit as well as construction loans for investors. Many times the documentation that the bank requests is above the heads of the regular investor, and having a mortgage broker that is familiar with an executive summary, a profit and loss, and other documents can make things a whole lot easier. And you are correct in the fact that many times you will end up paying two points origination versus one point but because of the value of the service provided I have never had a customer complain about fees that I had previously disclosed.

Ei yi yi.

This broker just called us dumb and said we’d be fine paying double for him to “broker” our deal to a portfolio lender.

I don’t think so.

So, back to my (somewhat rhetorical) question: why are *they* so angry?

Because *they* are getting squeezed out and we real estate investors aren’t as dumb as *they* think we are.