I wrote this letter to Michael Beresik. I was referred to him by the office of Barney Frank, congressman from Massachusetts. In this letter, I urge him to make changes to Section 1431 of the Dodd-Frank Act.
January 8, 2010
Dear Mr. Beresik: My name is Corinne Cordon, I am a private money broker from Las Vegas, Nevada, and I am writing to you about an unintended consequence that will occur as a result of Section 1431 of the Dodd-Frank Act. I read the Act when it came out because I work closely with our legislature during the session, and I want to be prepared with the facts. I had already heard from others in the industry that this Act would totally eliminate the ability of an “owner-occupant” to use private money to purchase a house, but I did not believe it, however, they were right.
The ability for a private investor to make a loan to someone who wants to live in the house himself will become extinct upon the passage of the regulations of the Dodd-Frank Act. And I do not believe that this is what Barney Frank had in mind. I think, that, as has happened in the past, no one remembered that there is a small, quiet industry that lends out their money directly to other people. We are not an organized industry, but thank God that we exist, because otherwise there would have been a lot of people who could not have bought property over the past two years, and the economy would have suffered even more because of it.
It does not concern us – the private money lenders – whether or not we can lend to owner-occupant families, because there are plenty of investors that we can to lend to. It does concern me as a humanitarian, however, that the owner-occupants, who have been kicked around enough by the institutional lenders, now have NO WAY to purchase a house. Trust me, conventional lenders are not willing to lend to someone who has had a short sale, foreclosure, bankruptcy, loss of job, loss of wage earner because of sickness or death – at least not for the next 5 years. And now they have such unbelievably ridiculous underwriting guidelines. Even people who have 790 credit scores are having a hard time meeting all of the qualifications.
We, the private money lenders, are the only ones willing to lend to people with these situations. And our loans are not onerous. For a family who wants to buy a house for $50,000 (of which we have done many in the past two years), they only have to put in $20,000 and we will lend the other $30,000. Yes, our loans are slightly more expensive than a conventional loan, but when you factor in all of the other benefits a conventional lender receives when he sells that loan on the secondary market, then you will see that we actually make less than those lenders.
It is our investors, who are ordinary people – usually retired – who are willing to fund these loans. And our investors are putting their money on the line for two entire years. That is like putting your money into a two year CD. They can’t sell their loan to the secondary market. And they can’t ask for their money back for two years. And our borrowers are so grateful that we are willing to make a ‘common sense’ loan – that we can see that they lost their jobs and had no way to make their mortgage payment – but that they had been 100% on time before they lost their job. We look into the background of their credit history. We don’t have a small box that they have to fit into. We lend to movie stars and nurses, truck drivers and housekeepers.
The payment on a $30,000 loan is $306.25 interest only. They are allowed to make additional payments whenever they want without any penalty. By the end of two years, they have usually paid us off. If not, we give them another year. My company charges one flat fee no matter who the borrower is. But it isn’t about the private money brokers, or the individual investors who are just like you and I. An individual investor puts his money into a private money loan because he wants to get a better return on his money and you cannot legislate to him how much he is willing to lend his money out at. If my private money investors would lend out their money at 8%, then I would be happy to give borrowers that rate. But they don’t and I can’t force them to. And if you tell a private money broker that he cannot charge for his services when he lends to owner occupants, then he will say okay, and never lend to an owner occupant again. Trying to legislate what a business person can charge on a loan, when the law has no idea of how much work we have to do to make that loan, and how much responsibility we have to keep our investor’s money safe, is illogical and just plain wrong.
I will write more on this later with specific changes that could be incorporated that would fix numerous problems generated through years of legislation that had no idea how this small industry works.
Corinne Cordon, President
Capella Commercial Mortgage
3571 E. Sunset, #102
Las Vegas, NV 89120
(702) 592-7183 cell
(702) 214-4703 fax