I received a call yesterday from a homeowner in Orange County looking for a meager $80,000 cash out loan against his $750,000 home, which he's owned free and clear for the past ten years. The catch, and there's always a catch when people wind up calling me for a loan, is that he and his wife just closed in December 2012 on an "investment" property in Las Vegas, which was a short sale, resulting in the bank taking a $150,000 loss.
They had inquired with several banks and Credit Unions about getting a small $80,000 loan, but each said, "No, you need to wait three years from the short sale date, per the Fannie Mae and Freddie Mac rules" or they said, "We don't do cash out refinancing any longer."
For those of you not aware, most Credit Unions are selling their loans to FHA, Fannie, and Freddie. They rarely make loans to hold on their portfolio. Selling off loans is the way it's done right now. Why take the interest rate risk? It's not worth it especially if in a decade, the price they pay for deposits rises over 3.50% - then it would be the Savings and Loan calamity all over again. Why not dump all these ultra-low mortgages onto the balance sheet of The Fed, who by 2015, will own 30% of all mortgage debt outstanding in the United States. (Probably by 2018, it will be 50% - just a guess).
The only solution for this homeowner is a private money / hard money loan, which I could get him at 8% Interest-Only for a cost of four points. For homeowners with a 780 FICO score and no debt, used to receiving 0% rates on auto loans and credit card offers, this doesn't sound very appealing.
However, in this tight credit market, where mortgage credit is limited to the rules set forth by Fannie, Freddie, and FHA, private and hard money loans are the only alternative, especially coming off the heals of a short sale, where the bank just took a $150,000 loss on an "investment" property and the homeowner came away unscathed.