A loan is a popular way of financing the purchase of a house, car, or any other necessity. An interest is applied on the loan provided and is termed as the rate for that loan. Hard money lending involves providing short-term loans that are imparted according to the value of the real estate that has been kept as collateral. Hard money loans are also referred to as bridge loans or swing loans and are usually for short terms that can range from two weeks to three years.

Hard money loans have relatively higher interest rates, as they do not conform to typical standards. However, hard money interest rates usually vary from company to company, and are influenced by the credit rating of the borrower and value of the property. Other factors responsible for varying rates are application fees, closing fees and prepayment penalties. Most lenders check the credit history of the borrower before approving any loan. The best way to compare these rates is to approach a local hard money lender to obtain a quote. High money lending may carry interest rates between eleven and sixteen percent, which are higher than typical rates for other types of loans.

Hard money lending is popular among borrowers who want a short-term loan to finance projects or make quick commercial acquisitions. Hard money loans are mostly used for commercial real estate purchases, where the borrowers want to quickly close on a property or retrieve their property from foreclosure. They are also frequently used in order to secure long-term financing.

Hard money lenders can operate in a local or regional market, or may have a national presence. Borrowers can contact brokers who represent certain hard money lenders. These brokers charge a commission in the form of a percentage of the loan amount for their service of preparing and submitting the loan documentation. Many online directories offer links for borrowers looking for hard money lenders.

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Supreme loans are high risk loans that are given to people who are having bad credit scores. But, these loans have been the culprits in shattering the dreams of many African-Americans.

According to the reports of National Urban League, the percentage of African-American homeownership that had increased to 50 percent in 2004 has slipped to 47.9 percent in 2006, mainly due to the increased rate of foreclosures.

As per a study conducted by Durham-based Center for Responsible Lending, the situation is not going to improve in the near future. According to this study conducted in 2006, around 2.2 million homeowners who have taken supreme loans during 1998-2006, are at the risk of losing their homes. Out of these, 10 percent of the borrowers are African-Americans. According to Marc Morial, who is the president and chief executive officer of National Urban League, providing loans to borrowers would be justified only when they are able to retain their homes. He believes that many Americans are turning their dreams into their worst nightmare by falling into the trap of predatory lenders.

According to Sharon Ruess, who is the spokeswoman of Center for Responsible Lending, many African-Americans are ill-equipped with the nuances of the lending industry and are being easily lured by lenders.

William Spriggs, Chairman of the Howard Universitys economics department, believes that poor understanding about adjustable rate of interest is the prime reason for the increase in loan defaults. According to a study conducted in 2003 by National Community Reinvestment Coalition, supreme loans are more prevalent in blacks. Lenders offer them only these loans although they are eligible for other low risk loans.

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Lehman Brothers will not live to see its 159th birthday. Merrill Lynch will continue to exist in brand name only. The recent turmoil on Wall Street is just more evidence that our banking system is horribly dysfunctional.

Conventional lenders such as banks, Wall Street brokers and Hartford insurance companies traditionally originated commercial mortgage loans and then sold them into the secondary market where they were bundled, turned into MBS (mortgage backed securities) and sold to investors, large and small. That ship has sailed, now it has sunk; there is (virtually) no secondary market for mortgage bonds anymore. Volume in CMBS (commercial mortgage backed securities) is off by more than 90% year-over-year and the pipeline of new deals is dry.

Banks are severely undercapitalized today due to the sudden and sustained devaluation of the real estate and real estate derivatives they hold. They can not afford to let a dime out the door. They can’t borrow against their mortgage assets anymore nor can they sell them; nobody wants them! With no market ready or willing to buy new commercial mortgages, banks will not write any new commercial mortgages. In simple terms; banks are not lending and won’t be lending again anytime soon.

We are in the midst of a severe liquidity crisis that is evolving quickly into a capital crisis. Capital disappears as-fast-as it’s raised as real estate backed assets continue to plunge in valuation. If this keeps up there won’t be enough money to go around. Even the Federal Reserve Bank is feeling the pinch, having committed more than $300B to shore up faltering institutions the Fed is down to it’s last half trillion. And it may very well get worse before it gets better.

With traditional lenders and conduits out of the picture, commercial property owners and developers are turning to private lenders for the financing they so desperately need. Many private, hard money lenders are “portfolio lenders”, meaning they lend their own money for their own account. These unique mortgage lenders are not dependent on the secondary market for their funding; they remain undaunted by the ongoing problems in the bond markets. Private mortgage lenders make money by charging high rates and many points for their capital and they protect themselves by writing loans at low LTVs (loan-to-value ratios).

Private lenders include, hedge funds, private equity groups, wealthy individuals and privately held financial firms with money to lend. They are able to be very nimble and responsive and can close good deals in just a few weeks. They can be highly flexible in their lending standards, generally underwriting loans based on the amount of equity in the target property rather than the credit or balance sheet of the borrower. The sad fact is that banks and brokers are unable to close deals. Cash rich private lenders have been the financial savior to many, many good projects over the last 18 months.

The banking system has malfunctioned and will take months to get back on track. In the meantime commercial real estate investors will have to depend on the private lending sector to provide them with much needed capital.

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