Poor Credit Makes Good Business

I manage a small portfolio of equity that specializes in loans to the hard-to-lend to, virtually all of which are second mortgages. This is called "equity lending," because the equity in the property--the amount that is left over after all mortgages and liens against the property are paid off--is our main security against default loss.

While this category mostly covers persons with poor credit or recent bankruptcies, it also includes: persons with no credit, such as those new to the country or newly-employed, persons with no provable income, no income, the self-employed, too much credit; those over 70, whom the banks generally decline; persons who don't want any further debt obligations noted on their credit reports; and for properties under development or renovation.

Contrary to what some might think, the borrowers are frequently high-income earners who have just taken on too much debt or face special situations. We've lent to medical specialists, accountants, senior executives and independent business owners.

With the very rare exception, we only lend on the borrower's principal residence--even when the purpose of the loan is to facilitate the purchase of another property.

Over 15 years of doing this, knock wood, we haven't lost a cent of principal or interest owed. Unlike the institutional lenders, if we can't find "product" we don't stretch our criteria. No one's job or bonus depends on how many commitments we make. I'd rather be all in cash than biting nails over pending powers of sale.

Our current mortgages carry a face rate of 13-15% with up-front commitment fees averaging 1-2%, plus legals and the broker's fee. [This is NOT a solicitation of business as legally we cannot originate loans unless we are registered as a mortgage broker.]