How Can a Lender Determine the Eligibility of the Borrower?

Lenders want to attract high quality borrowers because that is crucial to growing their business. But who is a good borrower? What are the factors that a lender needs to consider while determining the eligibility of the borrower?

 

Credit history

 

This is of utmost importance. Before making a loan, the lender has to verify the personal credit history of the borrower. Lenders should see how well the borrower has handled their personal and business debts in the past.

 

If the borrower hasn't obtained loans in the past, assessing their credit history may not be easy. Then the lender should rely on the person's work history, job security and personal references. If these are satisfactory, the lender should consider making a loan.

 

Credit score

 

The lender should use a reliable credit-rating agency to analyze the borrower's payment history to their business obligations. The lender should also ensure that the borrower is up-to-date with payments on their existing loans.

 

Repayment capacity

 

The lender should consider unforeseeable events. For example, the company may suffer an unexpected downturn after obtaining the loan. This will affect its repayment capacity. The lender has to verify that the borrower has the capacity to turn other assets into cash should profits dip. Assets can be investment certificates, real estate holdings, machinery or equipment.

 

Cash flow

 

A cash-flow based lender should look at the income of the company. Cash flow is the company's net profits. Generally speaking, in order to obtain a loan worth $100, the borrower / company should have $150 in cash flow.

 

Collateral

 

Most lenders offer both secured and non-secured loans. When the lender makes a secured loan, it asks the borrower to pledge an asset as collateral. This can be real estate, machinery, inventory, and equipment etc.

 

Before applying for a business loan, the borrower has to consider quite a few factors:

 

·         Ideally, the loan applicant should be the chief decision maker in the company.

·         The company should be operating in the sector for at least 3 years.

·         The company or its owner must not have filed for bankruptcy in the last ten years.

·         The loan applicant should have paid his / her bills on time.

 

Factors that might affect your chances of obtaining the loan

 

If there is a lawsuit or a tax lien against the loan applicant or the company, the lender may reject the loan application. Having multiple sources of credit may also reduce the borrower’s eligibility for a loan.

 

What to expect after applying for a loan

 

The loan application should be filed by the owner of the company. If the company has several owners, at least two of them should sign the application. Companies that have been around for three or more years are more likely to receive funding.

 

If the owner or the company has declared bankruptcy in the last ten years, the lender will probably not entertain the loan application. However, a company can improve its chances of getting a loan by repaying its creditors. If there a lien or a judgment against the company, it should release all of them before applying for credit.

 

Profitability

 

The lender will typically look at the company’s tax returns to see if it had made profits during the past few years. If it hasn’t reported profits, the company will probably find it difficult to make loan repayments. In this case, the loan application is more likely to be rejected.

What Makes a Good Lender?

Have you ever wondered how you could do your job better as a lender? Do you know what brokers are looking for in lenders? If you’re looking for an honest assessment of what makes a good lender, read on.

It’s easy for lenders to appear like they know what they’re doing when they have the most recent technology at their disposal and a wide range of products to promote. While each lender has a niche to build on, what brokers look for in lenders may not be so expected. Mortgage Professional America conducted a survey which consisted of no-holds-barred feedback from loan originators.

Here’s a look at what brokers are concerned about when it comes to working with lenders:

Service

Even more important than price is the level of service that a lender can provide. Brokers agree that service is the first aspect that they consider when choosing a lender to work with. They know what good client service is because they provide it themselves, so it makes sense that they look for professionalism.

Communication

There’s nothing worse than a broker and their clients being left in the dark about the status of a loan that is processing. Communication is vital for lenders so that timelines can be set. When these timelines cannot be met, they need to communicate this ahead of time to avoid any issues.

Thorough underwriting

Lenders should have an underwriting standard so that it is accurate every single time. You don’t want to find a mistake later on down the line that will result in the denial of the loan. It’s best to understand the underwriting rules from the beginning.

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All About Subprime Mortgages

Do you know what you need to be aware of regarding subprime mortgages? As a lender, it is your responsibility to learn about the current mortgage trends as well as the different types of mortgages.

So what exactly is a subprime mortgage?

A subprime mortgage is a mortgage that is made available to people who have lower credit ratings. Due to their low credit ratings, these clients cannot be offered the conventional mortgage because they are considered to have a higher default rate on the loan. In addition, they are charged a higher interest rate compared to the conventional borrowers in order for the lender to compensate them as a result of harboring a higher risk load.

The subprime mortgage industry has been faced by a number of constrains which almost led to its foreclosure and financial meltdown a few years ago. The two major issues include high unemployment rate and drastic increase in defaults. However these were overcome through proper advice to borrowers and guiding them through available options.

Who qualifies for subprime mortgages?

A credit rating of below 600 points will only qualify one for a subprime mortgage. Two major factors that make a candidate qualify for this mortgage are a declaration of bankruptcy and filing a late bill payment. They would need time to raise their credit points to qualify for a conventional mortgage. Other than the credit ratings, a person may be deemed to fall into the class of subprime if they do not bear proof of their assets or income like they would do with a conventional home loan.

Subprime mortgages are usually balloon mortgages or they are ARMs, or even both. They are usually more pronounced during when the demand for housing is high because at that point they attract a lower interest rate in the initial 2-3 years. However, after this period the rates are reviewed upwards after semiannual or annual periods. Subprime mortgages loan also may involve a balloon payment and a prepayment charge.

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How Technology Helps Lenders Comply with New Mortgage Rules

The rules of lending have changed and both lenders and borrowers are aware of that. Less than a few years ago, lenders were mainly concerned about getting good deals that they would ultimately sell in the secondary market. This is no longer possible.

The Consumer Financial Protection Bureau (CFPB) has rewritten the mortgage lending rules. Consequently, mortgage executives have been asking themselves if their processes, systems and people have also changed with the times.

The new rules put a special emphasis on customer satisfaction. The government now wants lenders to listen to and respond to their consumers. CFPB relies heavily on new technology to engage customers. In addition, the bureau has made it easy for borrowers to express their dissatisfaction with the lender by reporting their experiences on the CFPB portal. The bureau's Consumer Complaint Database will store and manage this information.

Consumers are showing great interest in providing feedback. More than half of the 139,000 complaints registered with the bureau by the end of the 3rd quarter of 2013 are related to the home loan industry.

When lenders are flooded with consumer complaints they will definitely need to rely on technology to resolve the issues. 

Here are some reasons why lenders need to invest in automation to serve the borrower better:

The new rules demand it

The CFPB doesn't ask lenders to employ new technology, but lenders have no other choice because the new rules are very complex. The lender can't comply with the new guidelines without the help of technology. The legacy systems that they use at the moment are not designed to meet the specific needs of the borrowers. These systems mainly helped lenders to process home loans for secondary markets.

Executives are also interested in investing in technologies that will provide a better buying experience to their borrowers.

Emphasis on consumer satisfaction

The federal government now insists that lenders provide a better buying experience to their borrowers. Lenders have never employed people to provide customer service. Since the profit per loan is low, they will probably not be able to afford it either. In this case, automation is the only available solution.

The key is investing in technology which will help the lender use their smaller staff to deliver a better buying experience to their borrowers.

New technology helps it possible for lenders to serve more customers faster.

When profit per loan is falling and the cost of compliance is rising, having happy customers alone will not help the lender to operate profitably. Lenders also need to use technology which will help them serve more borrowers in less time. The lender will receive applications from both qualified and non-qualified borrowers. It is crucial to eliminate those applications that are unlikely to qualify early in the loan approval process. This will save time for you.

Technology also allows the lender to decide how the application should be processed.  This allows the lender to immediately alert the borrower. When the borrower knows the outcome early enough, it will increase their overall satisfaction. This is true even when the lender's decision isn't good for the borrower. Technology also helps the lender provide timely status updates.

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A Comparative Analysis of Asset-Based and Cash Flow-Based Loans

When a company gets an asset-based loan (ABL), it is putting its assets at risk. An ABL uses a company's assets as collateral. These loans are much more expensive than regular bank loans. However, they are a boon for companies that don't have a huge cash flow.   

Let’s say there is a business owner trying to get a loan. He has got more than one option. He can, for example, get a loan on the basis of his company's cash flow. If his company makes huge profits, this is the only option he needs to consider. Banks prefer this kind of lending because cash flow based loans are less risky.

What if his company doesn't make huge profits? He may still require funding. In that case, his only option is to obtain an ABL. Traditional banks don't prefer this kind of loans. Most of them don't even offer these loans. However, there are several lenders who make asset-based loans.

An ABL is based on the value of the assets. That means if a company has assets of substantial value, getting an ABL is relatively easier. The lender might still consider your cash flow, but it comes only second.

Collateral

Different lenders accept different kinds of assets as collateral, but they all insist that the assets have to be salable. Lenders will not accept assets that cannot be sold quickly. The assets that are typically accepted by lenders include equipment, machinery, real estate, accounts receivable and inventory.

When the borrower gets the loan, it gives the lender the first security interest in the collateralized assets. So if the borrower fails to make the payments, the lender can seize the collateral, sell it and recover its investment. When a borrower gets a cash flow-based loan, they don't have to offer collateral. These loans are based on the company's credit rating and expected income.

Suitability

ABLs are suitable for some businesses. In the same way, cash-flow based loans are suitable for some other companies. ABLs are usually obtained by companies that don't have a good credit rating or surplus cash flow. However, its assets should be of substantial value. Otherwise, the lender will not approve the loan.

If the company has a sizable amount of cash flow and a decent credit rating, it should consider getting a regular bank loan which carries lower interest rates.

Assessment

Both kinds of loans have their advantages and disadvantages and it is hard to say whether one kind of loan is better than the other. It depends on the credit requirements and financial situations of the borrower.

It is true that asset-based loans are more expensive because they carry a higher risk. On the other hand, they help small businesses get financing even if they don't have sufficient income to justify the amount of cash they need.

ABLs have higher interest rates and processing fees. The borrowers should be able to use the loan amount to make profits. They can, for example, use the money to buy more machinery and increase their productivity. They may also use the loan amount to make acquisitions. If they fail to use it profitably, getting an asset-based loan would be a mistake.

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What to Do Before and After Setting up your Mortgage Business

Plenty of people are interested in setting up their own mortgage business. They believe that by being a mortgage broker, they can make loads of money. The truth is that successful mortgage brokers make six figures in a year. But all brokers aren't successful. This is a highly competitive field where only the fittest can survive.

Don't get disheartened. The first thing you need to establish yourself as a successful broker is the motivation to succeed. And to stay motivated, you need to do a few things. Remember that many brokers quit within months because they lacked either the right skills or the motivation.

Here we will show you what you need to do to become a successful mortgage broker.

Have sufficient savings

Mortgage brokers don't earn fixed monthly salaries. Their income is their commission. You will earn a commission only if you close a deal. This is something you need to remember all the time. You can't expect to receive a salary at the end of the month. Therefore, before you start out, you should have some money in your bank savings account. New mortgage brokers will have to find clients. This might take a while. If you don't have enough money in your bank account, you will find it difficult to make both ends meet until you start earning commission.

Many new mortgage brokers have no savings. Consequently, they lose their motivation if they fail to close any loans during the first month. By having enough cash reserves, you can keep your morale intact.

Promote yourself

You might be working for another person, but you still need to promote yourself. Every business needs marketing. Your mortgage business is no different. Don't sit at your desk all day waiting for the telephone to ring. Instead, reach out to clients. Use every available opportunity to promote yourself.  Set aside some money for advertising every month.  It doesn't have to be a huge amount. Many new brokers quit in less than one year because of their inability to promote themselves. Remember that you cannot become a successful broker without marketing your service.

Acquire new skills and knowledge

If you stop learning, you will stop earning. You need to be knowledgeable. You should have enough knowledge about your industry. You should know how the mortgage business works. Polish your skills. Attend seminars, buy books, training programs, and DVDs. Do whatever you can to give yourself an edge over your competitors.

Learn from top mortgage brokers in your neighborhood. Ask them what their trade secret is. When you learn from the experts, you too, will become an expert. Never stop learning. If you want to earn lots of money, you will need the right skill sets. Set higher income goals every month and learn whatever skills you need to achieve those goals.

Mortgage brokers can work flexible hours and successful mortgage brokers make insane amounts of money. That's the main reason many people enter this industry. However, they don't get the basics right and give up within months. While this is a highly competitive sector, with some patience and perseverance, everybody can succeed as a mortgage broker.

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Why Lenders Should Fund Green Homes

Green building practices are becoming the norm, but that is hardly surprising. Green buildings are healthier and more energy efficient. Since the quality of air present in these buildings is better, people living or working here fall ill less often. They also seem to possess a better attitude towards life and work.

In addition, green building techniques lead to reduced energy bills. Commercial establishments that have adopted green building standards witness an overall reduction in expenses. This leads to higher profits.

Adopting green building standards is relatively easy because most green building products do not cost much more than traditional products.

Companies are constantly looking for newer ways to manage their property more effectively. Consequently, they are adopting green building standards in a big way.

Health benefits of green building

Green building improves indoor air quality. Studies have also revealed that children living in green homes are less susceptible to allergy attacks and asthma. Better still, buildings that have adopted green technologies tend to command higher prices. Although benefits are quite clear, developers are still struggling to undertake green improvements. This is probably because many green products that we use today are relatively newer products and hence there is no reliable usage data. It is not exactly clear whether they possess the qualities they are said to have.

Getting financing is another big problem that developers face. Banks simply don't understand how green building creates more valuable homes. As a result, they fail to properly assess the value of these buildings. Since more and more builders will adopt green building standards in the coming years, builders need to educate themselves about the benefits of this new building standard. Appraisers also need to understand how green features increase the value of a property.

Many people believe that creating awareness is essential to change lending policies about green building.

Why lenders should embrace green homes

More and more builders will start adopting green building strategies in the immediate future. This will increase the need for funding. Lenders need to realize that besides the owner of the property and the environment, green building is profitable for them as well.

Green construction amounts to several billion dollars now. Currently over 100 million homes require energy improvement. As a result, there is huge demand for green remodeling.  Lenders who heed the call will reward themselves with a great business opportunity.

Lenders who go green can 'future-proof' their lending practices while at the same time contributing towards conserving our precious resources.

The fact that green buildings are selling faster is pretty evident. They also command higher prices. As far as the lender is concerned, green homes are safer investments because of improved collateral. They also require less cost to operate. Green homes tend to sell for a 7.5 percent price premium.

Green homes consume less energy. They are also healthier because of the improved air quality. Although they cost more than traditional homes, many buyers don't mind paying a price premium when benefits are clearly evident.

Green homes are here to stay. It is high time the lenders changed their policies and embraced these eco-friendly building practices.

 

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A Quick Overview of the New Mortgage Rules

The new mortgage rules require lenders to tighten their underwriting norms. They are designed with the objective of reducing the risks of loan defaults and foreclosures. The new rules apparently promise 'no surprises, no debt traps and no runarounds'.

Lenders now have to comply with 2 new requirements: The Qualified Mortgages and Ability to Repay. Here is how these two new requirements will affect the borrower.

Ability to Repay

Lending institutions are required to verify that the borrower has the assets and income required to afford the monthly payments throughout the entire life of the mortgage. In order to determine this, the lender may assess the borrower's debt-to-income ratio.

To calculate the debt-to-income ratio, you just need to add up your monthly expenses and divide that figure by your monthly income.

Low-Doc loans

Earlier lenders used to offer low-doc or no-doc loans without verifying the financial credentials of the borrower. However, the new mortgage rules require the lender to verify and document the borrower's income, debt, assets and credit history. This will involve more paperwork. It may also prolong the processing times. However, the new rules will ultimately benefit both the borrower and the lender.

Underwriters are also required to approve mortgages on the basis of the maximum monthly payments the borrower will have to make. They are not supposed to approve loans based on the lower teaser interest rates which last only a couple of months or years.

Qualified Mortgages

This rule ensures that the borrower will not buy a bigger home than s/he can afford. The new mortgage rules insist that a borrower's debt-to-income ratio should be less than 43%. There are exceptions to this rule and banks can issue mortgages to people with higher debt-to-income ratio if they are convinced that the borrower has assets that justify the higher loan amount.

The term of a qualified mortgage cannot be longer than thirty years. They also cannot have risky features like interest-only payments and minimum payments that do not cover the whole of the interest cost. If your monthly payments fall short of your interest cost, your mortgage balance will grow. This is called negative amortization.

In addition, the upfront fees that banks charge cannot be more than 3 percentage of the loan balance. That includes origination fees, title insurance and any points paid to reduce mortgage interest rates.

There are also rules that discourage lenders from offering financial incentives to mortgage brokers and loan officers for pushing borrowers into higher-interest mortgages they can't afford. The new rules will offer borrower protection without limiting their access to credit.

Lenders also seem to be happy about the new mortgage rules. The only concern they have is that the new rules might slow loan processing.

Interestingly, the new mortgage rules do not specify a minimum credit score or down payment requirement.

The fact that there is no minimum down payment requirement will benefit most first time homebuyers who might find it difficult to raise that much money. The lack of credit score requirements might enable banks to loosen their underwriting practices sometime in the future. That said, loans still need to be supported by Freddie Mac and Fannie Mae. Since these organizations are unlikely to approve applicants with credit scores below 620, most borrowers need to have a credit score of at least 620 to qualify for a mortgage.

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How Does the New ECOA Valuations Rule Impact Lenders?

On January 18, 2014 ,the new ECOA Rules regarding appraisals went into effect. The new rules will apply to all loan applications which are seeking a first lien home loan. This will apply to all new purchases and first lien refinances from 1 to 4 units. In other words, it will include all single family homes, duplexes, triplexes and quads. It will not apply to the majority of commercial real estate deals. The rules also extend to townhomes, condominiums, and manufactured homes purchased by individuals.

There is no differentiation between owner occupied units and investments units, with regard to the new appraisal rules. Credit unions are also no longer exempt.

Basics of the New Valuation Rule

At the heart of the new ECOA Valuation Rule is with regard to providing the applicant with a copy of the valuation or appraisal of a property. When a buyer makes an offer, during the lending process the appraisal is completed, and until now, generally the buyer never saw a copy of the appraisal even though they were charged a fee for it. The buyer generally has no say in the selection of the appraiser, which lenders generally choose at random from a list of approved vendors. This measure is said to provide a more objective appraisal and reduces fraud.

The new ruling requires lenders and creditors to provide the buyer (or refinancer) with a copy of the appraisal “promptly upon completion,” or within 3 days prior to consummation or account opening. If the lender chooses to email the appraisal to the buyer, they must comply with existing eSign requirements.

Banks or lenders may charge a fee for the actual appraisal, as most already do. However, they cannot charge an additional fee for the copy or mailing of the appraisal to the applicant. If the application is withdrawn, cancelled, denied or incomplete, the lender still must provide a copy of the appraisal to the borrower. They have no more than 30 days in the event of a decline to provide the borrower a copy.

The only condition that would allow the lender to not provide a copy of the appraisal is if the borrower waives their right to the copy. This may be done orally or in writing.

Impact on Lenders

Part of the concern for lenders in providing an appraisal to borrowers is that they will take it to another lender to complete the transaction. Processing a loan has certain costs associated with the loan. By the time the appraisal is ordered, many hours have been put into approving a loan. This puts the lender at a disadvantage.

In the event that a buyer chooses to switch lenders at the last minute this will impact and delay the closing. If this becomes a frequent scenario then it will impact both lenders and realtors. Overall it may be seen that the concerns are not justified. The lending process is an arduous one and it is hard to imagine a borrower volunteering to go through the process again over a slight change in interest rates, once the process is nearly complete.

Overall this should be a good regulation change as borrowers could become more educated about the appraisal process, providing more cooperation and understanding when it comes to appraisal values.

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How Do Lenders Determine the Loan Eligibility of a Real Estate Company?

When a lender receives a business loan application from a real estate company, they will consider several factors before sanctioning the loan. What are these factors?

It is true that lenders do not use a single criterion for approving a loan. In fact, they use several criteria to determine the eligibility of the borrower. For example, as a lender, you may review your business relationship with the firm requesting the loan. You will also get the financial statements of the company scrutinized by a credit analyst. In addition, you may gather reports from third party credit agencies. You do all this to ensure that the borrower has the financial capacity to repay the loan.

After analyzing the financial statements of the company, if you feel that the loan applicant meets your credit standards, you will approve the loan request.

Credit Rating

Before approving the loan application, you need to try and obtain a credit report on the real estate company from a credit rating agency. These credit reports include information about public filings, credit scores and payment histories. Any negative information (e.g. past-due payments or outstanding tax liens) that appears on these reports should act as a red flag. In that case, you may contact the company and ask for an explanation. If the loan applicant fails to provide a satisfactory answer, it’s best to reject the loan application.

It is true that these credit reports are not always up to date; however, they provide useful information about the credit history of the company seeking the loan.

Financial standing

You need to ask the real estate company to show its annual statement for the last two years. You may also request an interim financial statement for the month before. By analyzing these statements, you can get a better idea about the company's financial standing. In particular, what you want to know is the financial status of the company – whether they can repay the loan or not. You may insist that the company should get its annual statements prepared by a reputed public accounting firm.

Collateral

Most lenders require collateral for the bank loan. If the loan is secured with collateral, you can seize the collateral and sell it if the borrower fails to repay the loan. If a real estate company is requesting a loan for buying land, it can pledge the title to the land as the collateral. Some assets do not make good collateral. For example, you might not want to accept the assets that are not readily salable to a third party.

Personal guarantees

You may also require each owner of the firm to offer personal guarantees. Each owner will have to submit personal financial statements. These personal guarantees provide additional security. You can verify these personal financial statements and after approving the loan, ask the owners to execute a guarantee.

Relationship between the lender and the loan applicant

While processing a business customer's loan application, you will have to verify its past and current relationship with the customer. The loan committee is more likely to approve a loan application if the applicant has been a valuable depositor for years before requesting a loan. Community bank officers are more likely to approve loan applications submitted by companies that are actively involved in civic affairs.

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Changes to the Dodd Frank Act are Impacting Buyers

The Dodd Frank Act was signed into law back in 2010, but many of the changes that were implemented in January of 2014. This act has the potential to change a lot about the lending process. The idea behind the act was to prevent predatory lending and to hold lenders accountable for their loans, making them liable and subject to lawsuits, if they were not offering qualified mortgages. While this sounds like great legislation, the result is stricter lending practices that will keep many buyers out of the home buying market.

A few key pieces of the legislation that went into effect in January 2014 include the following:

The FHA loan maximum was decreased to $625,500. This is significant because borrowers who qualify for an FHA loan are only required to put down 3.5%. If borrowers do not qualify for an FHA loan they will be required to get a jumbo loan which requires at least 20% down. While some markets may not be greatly impacted by this decrease, markets with high property values like Washington DC and California, will be significantly impacted for a large number of buyers.

Rules for a Qualified Mortgage will need to meet new “Ability to Pay” rules. This includes stricter requirements around verifying income, credit, employment, and assets. The maximum for the debt to income ratio is set at 43%. This will hurt self-employed borrowers, who do not have a w-2 to prove income. It will hurt borrowers with less than perfect credit and with assets that are hard to verify and establish a value for. All these factors will impact lending.

Higher fees will arise. The new regulation has placed a cap on origination fees, where there was no cap prior to 2014. The 3% limit has generally not been met because of the competitive lending market. The other fees that may have a greater impact on mortgage costs is the increase in guarantee fees charged by Fannie Mae and Freddie Mac. These servicing fees will almost definitely be passed onto the customer. Add higher fees, with the anticipated increase in interest rates, and the costs could price millions of borrowers out of the market, or into lower priced homes.

The foreclosure process cannot be started until after 120 days from the last payment made by the borrower. This is very important to note. This will make it more difficult for the banks to foreclose on borrowers, but could be very expensive for the lender or loan servicing company.

These changes are bringing about a new lending environment. Banks have spent the last few years preparing for these changes, but most borrowers are unaware of the changes. There will certainly be a period of consumer education that will be required. The concern is that the stricter lending policies will turn more buyers away. This legislation has the potential to slow down the housing recovery.

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How B2B Lending Can Facilitate Economic Recovery

SMEs play a significant role in ensuring economic growth. In fact, roughly 95% of all enterprises belong to this category.

Most small and medium sized businesses depend on banks for financing. But bank financing can be very reliable. Many enterprises learned this the hard way during the recent financial crisis.

Since many banks now lend less than they used to, SMEs are finding it difficult to get affordable debt finance. And when capital adequacy requirements increase, banks will be forced to lend even less. As a result, the need for more viable sources of funding is increasing.

On the other end of the spectrum, there are institutional investors who need long term investment opportunities. Since many of them have already burnt their fingers in capital markets, they are looking for more viable investment opportunities. Unfortunately, there aren't many investment options that generate yield and security.

It is an interesting situation. SMEs need investors and investors need opportunities for investing. There is one problem, though. Big investors do not find SMEs all that attractive and consequently, the gap between investees and investors is widening. What we need right now is a financial solution to close it.

Theoretically, there are two options to bridge this gap between small investees and larger investors.

The first method is to pool enterprises that require investment in bond structures. Since this method will be based on capital markets, it is risky in many aspects. There are several other challenges as well.  For example, the risk profiles of investees may be incompatible. The structuring cost will be high and there will be intermediary fees.  Another problem is the slow execution and the inability to change credit terms over times. What's more, this method involves the same financial institutions that were instrumental in bringing about the collapse of the economy.

The second option is to encourage large investors to make small direct investments in SMEs.

Mainstream institutional investors are yet to warm up to this concept because these direct investments are usually small. In addition, finding a suitable company or project for investing in can be difficult.

However, by deploying crowdfunding through digital investment platforms, these problems can be overcome to a certain extent.

Some large scale institutional investors have already understood the potential of this platform. An advantage of using the digital platform is that eliminates the need for intermediaries. Consequently, the yields are higher than traditional investments. Furthermore, it provides better protection against risks as small investments are spread over many companies.

Since capital market movements have only a negligible impact on the performance of these investments, they are less risky. As far as investees are concerned, it helps them attract long term investments from several sources. This also reduces the cost of capital. When investees get direct investment from investors, they do not have to depend on banks.

Digital investment platforms have the potential to revive the global economy. Any investment in SMEs should be encouraged because they help bring world economies back on their track. What's more, B2B lending is not facilitated by banks and as such, it is more resilient.

Adjustable Rate Mortgages Made Simpler

An ARM or adjustable rate mortgage is often sought by homebuyers over fixed rate loans. Understanding ARM can be quite difficult, particularly for first time homebuyers. ARM mortgage has variable interest rates. Here the interest rate and your loan payments can change periodically in accordance with the economic index. The economic index refers to a standard followed by lenders. There are many sub-divisions within the economic index. Each lender follows a particular index. When you are shopping for home loans, compare the indexes used by different lenders. Try to identify an index that has remained largely stable in the recent past.

You will certainly come across many more terms when exploring adjustable rate mortgages. To make this easier for you, we are explaining some more terms that will help you understand and compare ARMs.

Adjustment Period

The period between two interest rate adjustments is called the adjustment period. ARMs are often compared on the basis of adjustment periods. This is usually mentioned in the form of single digit numbers separated by hyphens. Here, the initial period of the loan is mentioned. This is the fixed-rate period. The rate that was offered to you on the day you were granted the loan is applicable here. This is followed by the adjustment period. This follows the initial period, during which the rate can be altered by the lender. Most ARMs have annual adjustments.

Margin

This is the mark-up added by the lender. It includes the lender’s profit and the overall cost of doing business. The margin directly impacts the interest rate offered to the borrower. The sum of the margin and index rate is the total interest rate, i.e. the rate offered by the lender to you.

Amortization

Amortization is usually seen in larger payments. Here the lender pays the monthly interest and a part of the principal amount. However, negative amortization presents a problem. If you are not able to pay the interest amount, the unpaid sum is added to your total loan. Thus, your future interest payments are further raised.

Importance of Interest Rate Caps

Caps or limitations have been created to ensure that interest rates aren’t hiked beyond a reasonable limit. Periodic rate caps present the limit to which your interest rate can be hiked between two adjustment periods. Please note that all ARMs might not offer such caps. The overall cap defines the extent to which the interest rate can be raised through the total period of a loan. It is best to check the rate cap before going for an ARM.

Importance of Payment Caps

Since ARMs expose the borrower to changing monthly payments, regulations have been put in place to ensure that payments aren’t increased beyond a limit. Some ARMs have payment caps and don’t offer periodic rate caps.

Importance of Carryovers

With interest rate caps in place, lenders need a tool to spread the total, intended hike across the future adjustment period. This is called a carryover. You need to talk to your agent to understand things better.

Jumbo Loans are Becoming Easier to Get

Jumbo loan rates have dropped to level at or below those of conventional mortgages for the first time in more than 20 years. Typically, a jumbo rate will generally run about one quarter to one half of a point higher than the current rate for a conventional loan. Lenders are changing their way of thinking however, as they begin searching for business from the nation’s wealthier customers.

Wells Fargo began this trend in 2013 when they dropped the typical minimum down-payment from 20% to just 15. Competitors have begun to follow suit with some experts noting that it was a good time to e a jumbo loan borrower. The big banks are the ones who will have the best rates, and borrowers are going to need a minimum 720 credit score to qualify for the money.

Jumbo mortgage rates are averaging right around 4.25% as compared to the typical 4.35% being sought for the 30-year-fixed conventional loan. Those who are seeking a ARM loan can find rates around 2.875%, but borrowers should do so only if they expect to move from the property during the 5-year-fixed period.

Because of the rebound of the housing market, loan origination and approval rates are on the rise, and investors are starting to turn their eyes to the jumbo mortgage sector.

Jumbo Loans are Easier to Obtain

According to financial experts, people that had less than a 740 credit score could not get a jumbo loan, but that’s all changing now as opportunities for obtaining jumbo loans are starting to crop up for credit scores at the 720 level or in some cases, even lower. That doesn’t mean that jumbo loans are extremely easy to get these days, but rather the borrower must have a credit record that is fairly clean as well as a significant savings accounts that are perhaps larger than what would be required of the borrower looking for a conforming loan.

While a jumbo loan is considered one that is larger than $417,000 in most areas, they may start above $625,000 in areas where costs are high. To help entice borrowers to seek these loans, banks like Wells Fargo have lowered the 20% requirement to just 15%, and it doesn’t hurt of course that the interest rate is a bit lower than the typical conventional loan. Another plus for the borrower, is that while most loans with less than 20% down require mortgage insurance, those at 15% under the new terms do not.

Second homes are Easier to Buy

Let’s not forget about the terms surrounding the buying of second homes that have eased as well, so there is a lot of incentive for a borrower to look more closely at the jumbo loan packages that are available to them. Because of the expansion of the guidelines, loans that were once amounting to 70 or 75 percent loan-to-value are now being granted at the 80 percent level up to and including $2 million on second homes.

To put things into perspective, only 16 percent of the total number of borrowers who applied for a jumbo loan in 2012 have been denied access to that money according to LendingPatterns.com while previous to that the denial rate was as much as 30% or more. It seems that the reason behind the trend of more approvals in the jumbo sector is that lenders are now more confident about the values of homes. This is especially true for the houses at the upper-end of values.

It’s the stability of the real estate market that is now driving up the desire of borrowers to buy move-up homes. Because of that, lenders feel more comfortable in loosening up the purse strings.