Hard Money Loans No Longer Available to Consumers

Hard Money Loans No Longer Available to Consumers

Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes

The Dodd-Frank and the Consumer Protection Act have made it virtually impossible for a consumer to obtain a hard money or private money loan anymore. In the wake of the financial crisis, many consumers have had hits to their credit scores and can no longer qualify for a bank loan. In the past, when one could not qualify at the bank, one could still turn to a private or hard money lender for a loan. Not anymore!

The new Act has placed new restrictions on non-bank lending that did not exist before the financial crisis. The majority of hard money and private money lenders will no longer lend on owner occupied properties, for fear of regulators coming down on them. Ironically enough, it was the BANKS and not private money lenders who created this financial mess. Yet, it’s the non-bank, private and hard money lenders who are now being regulated.

In an effort to “protect” consumers, this new regulation is in fact “hurting” them even more by regulating the non-bank lenders. For example, a homeowner who needs to refinance and can’t qualify at the bank, is now unable to obtain a loan from a hard money lender. Equally, a homeowner who can’t qualify for a purchase loan at the bank also cannot obtain a private money loan.

What are your thoughts on this topic?

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Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
14y

Unintended consequences. In an effort to protect the consumer, they took away all the consumers' choices.

So all the self employed who can't qualify for bank loans anymore can't buy a house because the government is protecting them.

Now that's really helping the real estate recovery, isn't it?

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  • CA · Member since 2011 · 762 posts · 182 votes
    14y

    California does impose statutory limits on interest rate and loan fees for consumer loans, google "California High Cost Loan Law", it's been around for a while, since 2001 I think.

    ALSO, between Dodd Frank, CA Department of Real Estate and CA high cost loan law, lenders have to ensure that the borrower is actually able to pay back the loan. Compliance costs for the small lender can really eat you up.

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    14y
    Originally posted by K. Marie Poe:
    Originally posted by Bill Gulley:
    If the government wanted to protect borrowers they'd have usury rates for owner occupied equity and cash loans. That would take care of it. Missouri has had 10% for years and it's certainly not a consumer minded state.

    @Bill Gulley I'm in agreement that if the government REALLY wanted to protect consumers they would set usury rates for owner-occupied home loans.

    The 10% cap in MO that you mention appears to be about who can charge more than the usury rate, and not based on the property use or the borrower. According to MO Div. of Finance, insured banks and S&Ls and CUs and anyone who lent more than $1M in the past year are exempt and have no usury limit in MO. As far as I can tell, homeowners in MO are not protected from rates higher than 10%. Like you said, hardly consumer minded. :)

    Commercial loans are exempt from the rate. Residential loan are included and as you said for those under 1M in portfolio and regulated lenders. That boils down to the old wealthy type Realtors in town who make small bridge loans into deals or provide seconds. It also applies to seller financing by the homeowner who does not meet the lending exemption. The days of the good ole boy loan are gone I believe, you'll need to go through a broker.

    And, besides does anyone recall my comments in the "What do you want Mr. Note Buyer" thread? That these issues will trickle through to the note buyers to ensure that the loans were made in compliance. Your repurchase agreements better be pretty strong and buy from those who can actually repurchase it if it turns out worthless due to non-compliance!

  • Wholesaler · Member since 2011 · 6 posts · 0 votes
    14y

    I think hard money is just that " HARD " and it's all most as hard to get a hard money loan as it is to get a bank loan !!!

    If it's ok with you guys i would like to offer this software that really works [REMOVED]

  • Hard Money Lender · Los Angeles, CA · Member since 2013 · 33 posts · 9 votes
    13y

    "May the government be aware of you".
    Sometimes I wonder if it is a prayer, or a curse :-)

    Amir

  • Real Estate Lender · Miami, FL · Member since 2013 · 243 posts · 24 votes
    13y

    Corey Dutton

    Cory, I could not agree more w/ your original post.

    We find that we cannot meet the requirements of Fed. RESPA on a primary residence, consumer loan, so we only lend to investors on investment property-

    Therefore, if an individual owns his house free and clear worth $500K and it is his primary and he has bad credit and cannot get a loan from the bank, and he is a sophisticated business man, and he wants to borrow just $50,000.00- we cannot lend to him because of the Dodd/Frank act. (By the way, there are legal exceptions- that is another story and difficult to navigate),

    Now not only does that inhibit a growing and vibrant economy but for this to happen as a result of a law to "supposedly" protect the consumer is absurd!!!

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