I moved to San Diego in early 2003 which means I am approaching my fifth year in America's Finest City. The summer of 2003 was quite a culture shock for me. Twenty-somethings were making mid six figure commissions broking mortgage loans that can best be described now as "risky". Everybody was buying and flipping houses fueled by the loose lending guidelines. Sadly, everyone but me.
I felt old and I felt like a failure. I had a cushy job as a National Sales Manager but I was missing out on the big bucks! I contemplated moving back to Phoenix where my comfort zone was. Then I found Ron Feinberg and Wally Blazyck at World Wide Credit Corporation. They introduced me to broking trust deeds. I chucked the prospect of partnership in the mortgage banking concern (Thank God for that; I'd be in big trouble, now) and immersed myself into learning my new craft.
Hard Money Lending is essentially asset-based lending. We originate loans at low loan-to value for investment by private investors. Real people lend this money not faceless institutions so you have to be extremely careful about the due diligence and packaging. If you screw deals up, you're messing with someone's retirement money. We've been careful but successful in our pursuit.
The sub-prime mortgage market is falling apart. Wall Street firms are being stung by the bad sub-prime loans they bought and demanded that the lenders who sold them buy those loans back. The sub-prime lenders didn't have the money to do so. Those Wall Street firms simply swapped the debt for ownership in the firms. Once the camel got his nose underneath the tent, he didn't like what he saw.
The sub-prime mortgage market is completely tightening its lending standards. The wholesale account executives, once compensated like a proven reliever for the Padres, are applying for night gigs as bartenders to supplement their income. The words "stated income" are becoming more politically incorrect than a racial slur. The new sub-prime lender will emerge as the prostitute who found God.
Which brings me to the opportunity. There will be a lot of borrowers...many, in fact, who need the help of a private mortgage lender. There will be so many borrowers who are shunned by the "new and improved" sub-prime lenders that a trust deed investor will have her pick of the litter these next 12-18 months. She'll be able to significantly upgrade the credit grade of her portfolio without sacrificing loan-to-value or double digit yield.
Vacuums create opportunities for those wise enough to recognize them and nimble enough to seize them. Let's cash in on The Trust Deeds Boom of 2007.