Irwin wants to lend you money

Irwin Home Equity was one of the lenders originating the 125% loan-to-value home loans. Not surprisingly, they don't really do that anymore.

CNN carries the report of
Irwin's 3rd quarter results, and there's a hint of things to come in the transcript.

On the commercial side, we are seeing mixed results. Our commercial finance channel produced record quarterly income, with strong production and good credit quality. However, loan growth in our commercial banking segment, while stronger than earlier in the year, continues to be behind our targets.

I don't know about you, but I read this as basically meaning, "it's as good as it's ever been and we need it to be better."

Commercial lenders show signs of shoveling money out the door. Earlier tonight I saw Suzie Orman talking to women who'd purchased houses using negative amortization loans. Make sure you are working with someone who isn't going to let the ease of getting the money put you in a spot where you'll regret taking it.

New product alert

Some new products that have come across my desk:

• Unsecured lines of credit: The good news is that these are immediate funding with low documentation. The bad news, as one might imagine with an unsecured, low-doc loan, is that these loans aren't cheap. However, if you need the money now, and have an increase in revenue that's going to result, it's a great deal for you.
• "Angel funding": The downside -- a minimum loan of $25 million. The upside: repayment terms that are so easy I'm not allowed by the lender to put it on my website. Call me to hear the ins and out.
• Energy funding: One of my lenders is hungry for energy funding. Energy projects that have a definite buyer for the produced energy are getting loans approved fast.
• Aggressive SBA loans: Another one of my lenders is hungry for SBA loans that fall outside what banks usually write. If your scenario has a higher loan-to-value than your bank is comfortable with, or you have less reserves than your lender likes, call me and we'll see if we can your deal done.
  

Why you can't find the 125% loan these days

For awhile one of the more popular residential products was the 125% loan.

While borrowing more than your home is worth sounds approximately as entertaining as playing with dynamite, it was a great deal back in the day (i.e., 2006, when dinosaurs still walked the earth) for those people who had 5 figures worth of credit card debt. The total payments would drop and cash flow would improve. For homeowners who were committed to staying in their houses for the foreseeable future, it was a way out.

Those loans are effectively dead, and this entry from the Market Oracle shows you why. In painstaking detail it shows how the theory behind the second mortgage went very wrong, and how the market in collateralized second mortgages absolutely collapsed.

While the article contains some hyperbole, it's an accurate asseesment of how a good lending tool went bad.

For entrepreneurs, it all means one thing: the housing market in the US has a long way to go before it gets better. Lenders will be eager to write good loans to businesses, but it's important to get in on that at the ground floor, and not buy an office building or a gas station at the top of the market.

Asset-backed commercial paper dwindles again

The credit crunch shows little sign of slowing down. Reuters reports today that asset-backed commercial paper shrank again last week. That's the eleventh consecutive week.

That shrinkage translates to one-half of one percent. By itself that's a rounding error. But in the overall picture, it means there continues to be less money to lend, and hence, that money's going to be more expensive.

Correction: "The Fed didn't say that"

I linked to a story on Tuesday indicating that the Fed would "do whatever is necessary" in order to protect the economy from the credit crunch that stemmed from the subprime meltdown.

Don't believe everything you read in the news, my friend. I came across this post on the Motley Fool website today. What do you know? The AP had the quote completely wrong.

AP reporters misstating quotes? That could never, ever happen.

SIVs continue to roil markets

Most of the loans that I can put a business into are ultimately going to end up in an SIV -- a "Structured Investment Vehicle". SIVs are like any other tool -- they aren't inherently good or bad, they're just tools. But because of the subprime lending meltdown, there's a tremendous amount of turmoil in the lending world around SIVs right now.

Here's an example of the repercussions: today's London Times has the story of a $2 billion SIV set up by a German bank that has gone into receivership. The Rhinebridge fund, owned by IKB, defaulted on payments to creditors last week. If I'm reading the story correctly, and if the reporter has the facts right, then there are $600 million in assets that the fund controls. So investors are "only" losing
70 cents on the dollar. I've seen worse.

Here's where things get really interesting: Today's Seattle Times reports that the King County Investment Pool has $100 million in the aforementioned Rhinebridge fund.

So King County may have just taken a $70 million haircut. To have a chance of meeting their obligation to bondholders, they have to find a way to invest their money in safer ways... but if they play it too safe, they won't make enough to pay the bonds back.

High quality commercial loans are going to be an expanding area of interest for lenders. There's a world of difference between loaning to a profitable enterprise and loaning 100% of a home's value to a family with no assets, a history of bankruptcies and three maxed credit cards.

TIP: if you can't show a profit on your tax returns, all is not lost. If your business bank statements can show a history of more money going in than out, there are loan programs that can help. Make sure your credit is good and try to keep any credit cards associated with your business either paid in full or at least below 50% of the available balance.

This is what I mean

I came across Jordan Crouch's blog today. I can tell that he is extremely good at his job, he's a good writer, and I'm honestly not trying to pick on him. But this post is exactly why I started this brokerage project.

First of all, if you look at the numbers this guy is tossing around, it's clear he's operating on the big time major league level. $400 million here, $684 million there... that adds up pretty quickly.

Jordan quotes terms that are 3, 5, and 10 years. That is going to do your average individual gas station owner or 12-plex landlord very little good.

Major commercial lenders are operating in a world where the lender, the buyer, and the seller all have attorneys on retainer, and where everyone can afford a refinance in a 5 years. If you want someone who can operate on a more everyday level... and still get you fixed rates and 30 year amortizations... then I'd be happy to see what I can do.

Commercial real estate: investing for your nest egg?

As always, there's a fine line between "investing for retirement" and "gambling." Today a trio articles caught my eye that seem to tie into a common theme, which is "you can make a bunch of money, but you can also lose your shirt. So do your homework."

First up is this happy article from the Springfield News Leader, which tells us about the "strong growth in the office and retail segments" and says that while there are some signs of slow-down there is no sign of any imminent crash.

Keep in mind that there are posts on this very blog from people who are very nervous about over-valued commercial real estate.

Does that mean that all CRE is overvalued or headed for a fall? Of course not. Like politics, all real estate is fundamentally local. It's the original case-by-case basis industry. A strip mall or office building might be a great deal even with a really low cap rate because of other factors. Similarly, an apartment building might have a terrific pro forma, but there are 6 out of 12 tenants who are sick of the winters in that building and are headed out as soon as their leases are up.

Following that article, I found this article which is both good and bad news: "The Federal Reserve will do whatever is necessary to prevent damage to the economy from the credit crunch that has gripped Wall Street...."

The good news about that statement, for entrepreneurs and people like me who help get money to entrepreneurs, is that interest rates will probably not take off like a rocket. The bad news is that there's a fairly clear signal that the underlying problems -- an overreliance on off-book collateralized debt vehicles -- may not be dealt with. Build assets now, my friend, and structure your debt wisely.

Lastly, Jeff Brown, a man I had the good fortune of talking to yesterday, has this article on his blog: the 401K as a Trojan Horse. 401Ks are sold to the public as a great way to avoid taxes. Guess what? You can easily blow yourself up with taxes using these vehicles. Read the whole thing, as they say.

What does this add up to? As the man said, God isn't making any more land. Real estate can be a terrific investment and it beats the heck out of relying on your 401K to save you by itself. However, in anything you do, you have to watch the fundamentals and make sure the math works for you, your particular risk tolerance and your particular situation.

It's the reserves

Gretchen Morgenson, in yesterday's New York Times, points out an aspect to the subprime meltdown that I haven't seen touched up on very much: where are the reserves?

Traditionally banks keep very little cash on hand. This doesn't just apply to the money they keep at the bank. As banks eat losses from lending, they in turn have to take that money out of reserves, and there's only one way to replenish those reserves, which is out of income.

Ms. Morgenson expects profits to take a big hit at the major banks for some time to come, and her analysis seems compelling to me.

What does this mean for entrepreneurs? Keep your assets handy, and if you have equity in a property, and can get it now, you may want to investigate the pros and cons of getting at that equity. It won't do you any good sitting there, but it also won't do any good to pay more for your property than you can afford. Take a look at the numbers and get a broker to run your scenario past a variety of lenders.

Is commercial the next subprime?

Lenders and brokers both are gritting their teeth and gripping the wheel with white knuckles over the question of "who's next?" Given that the business model of collateralized debt securities has taken such a beating, it's no wonder that there's a worry that commercial loans, FHA loans, conventional loans, etc., will all start falling through the floor.

It doesn't help much when people issue statements such as this:

"...inflated commercial property values, aggressively structured loans, and relatively high bank exposure for many mid-tier banks are 'a fairly toxic mix of factors.' "

Then of course there's
this graph right next to it.

Traditionally commercial loans have been on shorter amortizations and more aggressive adjustments than residential loans. The same kinds of opportunities to profit by refinancing are in front of property owners right now.

Lending money to family and friends -- what could possibly go wrong?

If you feel like setting your personal relationships on fire and making family reunions really really interesting for a long time to come, you can always start lending money.

Richard Branson is now making this easier than ever with Virgin Money -- a way family and friends can lend to each other more efficiently, and hence, spend less time and energy in blowing things apart.

Sir Richard has had some wonderful ideas in his time. I'm not sure this is one of them. Tying together love and money has a somewhat checkered history.

Kansas City's MicroWinery

Well, what's the point of living here if you don't enjoy living here? Add to your "to-do" list http://www.vintnerscellarkc.com/, Kansas City's only "microwinery."

If you were like me and completely unfamiliar with the concept of a microwinery, here's how they describe themselves:

We make our own wine on premise with the highest quality juices from around the world, as well as allow our customers to make their own wine. You can buy wine by the bottle or relax with a glass in our tuscan influenced micro-winery. For special occasions and gifts, we can create custom labels for your bottles. We will also host events at our micro winery such as birthday parties, wine tastings, teambuilders, bridal showers, etc.

Sounds like a winner to me! Call them up at (816) 943-1711.