Consider a stock secured loan : Rooftop Views

Rooftop Views

Consider a stock secured loan

This article is by Joel Greene, mortgage broker and President of Condo Hotel Center.

With real estate values continuing their nosedive to astounding new lows, the one thing that prevents investors from taking advantage of the great buying opportunities is the scarcity of money.

Despite their federal bailout, banks still aren’t ready to open up the cash tap.

Most borrowers won’t meet the more severe regulations imposed by Fannie Mae and Freddie Mac.

Home equity loans, with all their complex paperwork and extra costs have lost their appeal. Plus, with today’s deflated values, these loans aren’t an option for most home owners.

Investors don’t want to secure private funds if it means paying 10-12 up front points or high interest rates.

Even wealthy individuals who want to leverage what they have can’t get loans, despite their cash reserves.

So how can investors get financing for real estate when it’s as elusive as Big Foot?

Stock-secured loans. This new financing option is rapidly gaining popularity. It lets borrowers use their stocks or other securities, (mutual funds, CD’s, bonds or treasury notes), as collateral for loans, up to 85% loan-to-value in some cases.

Part of their appeal is that the process for obtaining these loans is surprisingly simple. The real estate being purchased does not need to be appraised. The borrower doesn’t have to furnish lots of documentation (tax returns, employment records, etc.). And no credit checks are done. The only thing required is a stock or securities portfolio to use as collateral.

Best of all, borrowers don’t have to liquidate any of their holdings, a real plus since values right now are at record lows. They simply use their securities as collateral, even as those holdings continue to grow!

While most people seek stock-secured loans to purchase real estate, they also can be used for almost any other purpose, from paying for college to financing an overseas trip, a new business or even a yacht. Again, if the borrower has stocks or securities, they most likely can be tapped for money right now.

For that reason, stock-secured loans even work for people who want to purchase homes but won’t qualify for traditional financing, either because they lack cash for a down payment, have poor credit, don’t have a job or have past foreclosures or bankruptcies in their past.

Borrowers can obtain stock-secured loans ranging from $50,000 to $200 million. Currently, interest rates start at 4.99%, interest only. Terms are typically 2-7 years.

At the end of the term, a balloon payment of the loan’s balance is due. The borrower then can do any of the following: a) refinance the loan, b) sell the stocks pledged as collateral to repay the loan, or c) walk away from the shares pledged as collateral. No matter which option is chosen, there is no recourse, and the loan is considered paid off.

In today’s tight-credit economy, stock-collateralized loans offer a viable alternative and are certainly an option worth considering for anyone seeking to invest in real estate or other major purchase.