Loan Officer Training 10/10/2024 - Navigating Blanket Loans: Best Practices for Loan Officers

In this episode of "Loan Officer Training," we’re exploring Blanket Loans—a powerful tool for real estate investors looking to finance multiple properties under one mortgage. For loan officers, understanding how to effectively navigate these loans can open new opportunities with high-value clients and streamline the lending process for portfolio investors.

Join our expert hosts as they break down the ins and outs of Blanket Loans, providing practical insights on how to structure, evaluate, and communicate these complex products to your clients.

🏘️ What are Blanket Loans, and how do they work for financing multiple properties?
💡 Who are the ideal candidates for Blanket Loans, and when should you recommend them?
📊 Best practices for evaluating risk, setting terms, and underwriting multiple properties.
📝 How to present Blanket Loan options in a way that adds value and builds client trust.

This episode will equip you with the tools and knowledge you need to navigate the nuances of Blanket Loans effectively. Learn how to identify suitable scenarios, overcome common obstacles, and guide your clients through a smooth application process.

Whether you’re working with seasoned investors or new clients interested in expanding their property portfolio, mastering Blanket Loans will enhance your skills as a loan officer and help you better serve a key segment of the market. Tune in to "Loan Officer Training" and discover best practices to expand your expertise and empower your clients with the right lending solutions!


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Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join

The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation!

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access...

Transcript

Restream recording Oct 10, 2024 • 04:02:48 PM: 0:13

All right. So welcome everyone. My name is Kyle Hiersche. I'm the COO of the Mortgage Calculator joined here by our president, Nick Hiersche and our CSO Jose Gonzalez. We are a lender that specializes in non QM loans and what we do every Tuesday, Wednesday, and Thursday at 12 p. m. Eastern on this show is a different loan officer training topic, deep dive. And today we're going to be talking about blanket loans. Uh, I'll go ahead and turn it over to Jose to get started. Jose, if you're ready, let's get into it. Yes, good morning. Actually, good afternoon. Good morning for those of us on the West Coast, those of you on the West Coast, because I'm certainly not in the West Coast. Um, thank you for joining us for today's training webinar on blanket loans, also known as portfolio loans. This is a great tool. Um, Definitely one of the good niches. If you want to consider one of the niches that are probably underserved, blanket loans is one of them. Uh, you're not going to have a lot of competition, uh, reaching out to investors to discuss blanket loans. So let's get right into navigating blankets. So what exactly are we referring to when we're When we're talking about a blanket loan, well, like the title of the presentation says, they're also known as portfolio loans because they're the type of loans that an investor will use to finance the properties in their portfolio under one loan. As a blanket loan is a loan encumbering multiple individual properties. Each property with their own folio. So what a blank alone is not when we're talking about, you know, multiple, you know, units, you know, five units, six units, eight units, we're talking about individual properties. When I'm talking about units in a multifamily building, for example, where it could have eight units, 10 units, that's a multifamily. That's not a blanket loan talking units on a blanket loan is unit properties, each with their own folio number assigned their individual properties. As you would guess, the blanket loans are only for investment properties. When you do have the blanket loan, there is only one. Note, right? So there is only one monthly payment and a very important to note each property has its own individual title policy, which do all come together, right? Uh, to the loan, but there, you know, each property's title has to be reviewed, which is one of the issues that we're going to discuss coming up is that if one of the properties has a cloud on the title. And you want to keep that property in the blanket loan, then your blanket loan may be running into issues unless you resolve the cloud on the title or remove that property from the blanket loan. So what are some of the transaction details for the blanket loan? Well, great news is we do have options up to 80 percent LTV for purchases. And 75 percent LTV for cash out refinances. Uh, please do know, uh, one very important criteria when you are structuring your blanket loans for your borrowers, please make sure to discuss. Carve outs with them. A carve out is essentially removing one or more properties and, you know, it's usually trying to remove one, removing one or more properties from the portfolio. This is a very important point to consider because not all blanket loans allow carve outs. So what if you go through the whole process of the whole loan and right before closing is when this scenario comes out. And the investor then tells you, but you never discussed this with me. Why would I want to get into a loan? Uh, with my 10 properties is, you know, as you know, I'm an investor and I make money on the capital gains usually is how I like to structure my business. So why would I encumber all 10 properties in one loan where I would not be able to sell one, two, or three of them? As I chose and then the investor may decide to cancel the transaction right then and there, or worse, they close on the deal and then they come at you after the fact with some legal proceedings as to why was I never told that I could not do this and now I'm trying to sell these two properties at a great deal and now I'm told that I can't do this and you know, you could be facing uncomfortable situation there. So first and foremost, make sure you discuss carve outs. Or the need to have a carve out with your investor when structuring their blanket loan. Now we do have options, uh, with a DSCR minimum below one available. But again, that's obviously going to be at reduced interest rates. I mean, excuse me, reduced LTVs, definitely not reduced interest rates. Reduced LTVs with that option, and that would be, uh, by exception basis only, because they all do require above 1. 0 DSCR. But we do, again, we do have it, like the option that we have for the, uh, low value properties is actually a, uh, no ratio DSCR option. Uh, one to four, uh, unit properties only with the blanket loan options that we have. And I was mentioning there, we do have options where the loan allocated amount per property could be as low as 50, 000. That would be, uh, 67, 000 minimum property value, 50, 000 minimum loan amount. That same option, uh, we can have a minimum property count as low as two. However, that's also the option that only goes up to 75%. The one that goes up to 80 percent LTV does require a minimum 100, 000 property value. Uh, now minimum credit score is 650. for the 75 percent LTV option and 720 if you're looking for 80 percent LTV option, minimum 720 on that one. Now, uh, one of the, uh, nice points to consider with the blanket loan is that usually you're only going to have one closing cost from title for the loan, right? Now they may adjust that closing cost. It's a blanket loan with 10 or 15 properties, but usually only one, uh, closing or settlement costs, uh, as we like to call it. Uh, but do please note that there will, there will be a closing or a funding fee from the lender that will vary depending on the number of properties. So again, sometimes, uh, there's a preconceived notion on there that the reason why you would, uh. Why a borrower would pick a blanket loan over individual loans would be because they're going to save money on the transaction. You save money on some of the transaction fees, like you may save money on the closing fee from title. You also may save money on the underwriting fee, uh, because if it's only one loan, there may only be one underwriting fee, as opposed to 10 individual loans with 10 Individual underwriting fee, but there will be a closing or a funding fee that will vary depending on the number of properties. So the savings from the only one closing costs from title and only one underwriting fee for the one loan will be offset. To some extent by this additional closing or funding fee that will be based on the number of properties. So it doesn't mean it'll be charged 10 times. It was 10 properties. It just means, uh, they may say one to five properties is 500, uh, six to 10 properties is 1, 000 and so forth and so on. Uh, depending on the number of properties that are in the blanket loan. Please do note, uh, maximum loan amount is 2, we just however higher amounts are definitely possible, uh, on an exception basis. Submit your file, compensating factors, and they'll get back to us regarding what is possible for the scenario. So what are, now that we've talked about some of the structure and some of the limitations, even though we're going to get into the limitations a little bit more in the next slide, but what are the actual benefits for a blanket loan, right? What is what really, uh, are the highlights to, for the blanket loan? And the main, main one, number one there on the list is The main, uh, strongest point on a blanket loan is that it facilitates the financing of multiple low value properties, right? That normally you wouldn't be able to finance them. So for example, we can definitely do a blanket loan for 10 properties that are 75, 000 can be financed as a 562, 500 blanket loan, right? We group them together. Okay. However, one 75, 000 property with a 60, 000 loan will be very difficult to finance, especially if they're looking to do DSCR as our lowest loan amount for a DSCR loan is 75, 000. So we would, usually that equates to a value of somewhere around 93, 000, 94, 000. So, you can see the only way we could do, let's say 2, 000, 75, 000 properties is with a blanket loan. So that is the main benefit to a blanket loan. I've had them where they come up to me and say, Jose, you know, what's so it's your lowest loan amount. And before I answer the question, I always like to ask them. The question is, well, what's, what are you trying to do? Are you trying to buy multiple low value properties because they have such a good rental rate of return? And their answer is usually, yeah, I'd love to buy those lower value property, but it seems like I can't find anyone to finance a 75 or 70, 000 property. And then the reply there would be, well, why don't you get at least two? Or more, and then we could handle the transaction via a blanket loan with at least 25 percent down. And I've had it like that where I've turned that scenario into a five or 600, 000 loan when we really probe a little deeper and find out what exactly is the borrower's objective. So that's number one on the list for sure. Number two is, uh, the blanket loan is going to result usually in simplified mortgage documentation processes. You're going to have to submit the same documents multiple times for multiple loans, right? Uh, you just submit one for all type properties, uh, as opposed to 10 individual loans. Now, as I mentioned earlier, please note that there are additional expenses. Such as funding fees and closing fees based on the number of properties. Uh, the blanket loan. Now, this is a real good one you may not have considered. Uh, the blanket loan allows us to consolidate multiple loans into one loan, thereby freeing up the borrowing capacity tied to the number of individual mortgage loans a borrower may have. So you've seen that one on some of the guidelines. Uh, Bar can have up to 10 properties. Bar can have up to 15 or up to 20. Whatever is the property limit, it's you, they're really talking about loans. They can have up to 10 loans. So now all of a sudden if you get those 10 properties and put them under one loan and the particular loan product that they wanted to get approved for was one that happened to um, Require, you know, limit the number of finance properties a borrower may have this blanket loan now would allow you to essentially press the reset button and convert those 10 property 10 individual loans into one. individual loan. And then now you got nine more to go. If your borrower was looking at one of the guidelines that said 10 prop 10, uh, financed loans in one shot. So that's definitely one you may not have considered now. Number five, their access additional equity. Now this is, this is interesting as pooling the properties under one loan combines the equity. So the lower value properties with less equity. It will benefit from being pooled with the higher value properties with higher equity. So that then your combined loan to value on your portfolio will be lower and thus, uh, free up some additional borrowing capacity for the, for the your borrower. So that's an interesting one there, uh, where they can combine all of their properties in one and have a combined loan to value. and then I did touch on this earlier. You can save on the individual underwriting fee per file. Individual underwriting fee in non QM could be as high as 1, Sometimes even a little bit more, depending on your budget. On the investor where the file is being submitted. So that could be a substantial savings even if it is going to be offset a bit by an additional closing or funding fee. Uh, the additional closing or funding fee is going to be definitely lower than if you add fees for five, seven, eight, or ten file. Substantial savings there, uh, regarding the cost for the transaction. So here in our last slide, we're going to touch a little bit further on the challenges that borrowers are going to face when they're trying to originate and close the blanket loan. Now, I already mentioned this one. This is probably, you know, the main one that you need to discuss with your borrowers to make sure that everybody's on the same page, uh, regarding the carve out, because the, the main disadvantage to a blanket loan is that it may not be possible for the borrower to sell or refinance individual properties without a partial release clause also referred to as a Now, some blanket loans will allow a carve out with restrictions and restrictions are usually going to be items like paying down additional amount off the payoff to rebalance the portfolio. And one of the, uh, blanket loan options that we have, they require you to pay down an additional 20%. Of the amount of the payoff. So the payoff for property that's looking to be carved out of the portfolio is 100, 000. The payoff would be 100, 000 plus 20, 000 additional, uh, to bring down the balance to and rebalance the risk in the portfolio. So that's a critical component there. Um, you know, and make sure that you cover those details in the beginning rather than in the end. you know, something else you may not have noticed. Uh, blanket loans are limited by state because state laws and regulations, uh, regarding lending vary from state to state. No two states have the same laws. So if you have properties in three different states, you will need three separate blanket loans. Now, number three, equally as important one to defin, definitely let your borrower know. Uh, if you, if they do decide, yeah, Jose, that's a great idea. I want to buy some properties with a blanket loan. They have to be aware that the properties need to be purchased from the same seller, right? You cannot have a portfolio loan where you have 15 properties, five from one seller, five from another, and five from another, because the closing has to occur at the same At the same moment, at the same time, you can not close them at different times with different sellers, uh, getting different monies, uh, that would be a violation of RESPA, uh, would not allow that. So you gotta have one seller on that, on that contract, one seller on the hood. Get into money. Now it could be two or three sellers of all the properties, but I guess what I mean by one seller is one, one seller or one group of sellers for the portfolio being, being sold. It doesn't mean you can only have one seller. You're going to have two, three, four, five sellers. You just have to be the sellers of the portfolio. It's really what we're trying to establish there. And last but not least, I did touch on this. Uh, all the properties serve as collateral for each other, right? They're all in it together. So if you have one faltering property that could jeopardize the entire portfolio. So if one property has a cloud on the title, guess what? The whole portfolio has a cloud on the title. And the only way that you're going to be able to close on that loan is to either resolve the cloud on the title or remove that property from the transaction. So, I hope that we were clear here in what are the challenges to a blanket loan, what are the actual benefits to a blanket loan. Transaction details. So, you know, what are multiple, uh, maximum LTV is credit scores. We definitely have a lot of information in the guidelines that we have for blanket loans. So do not hesitate. This is one of the great niches out there to, uh, be trying to specialize. All right. Thank you, Jose. So I see we have one question. If you have any more questions, go ahead and drop them in there. But the question is, can an investor refinance multiple properties into one blanket? Absolutely happens all the time. We have them going in both directions. They're coming in refinancing, or they're buying one blank, you know, one portfolio with a blanket loan, or they may have seven or eight or nine or 10 individual properties that they may have purchased cash, right. And they purchase it low dollar amount. Now they want to cash out and, you know, repeat, right? So the best way to do it, if they're low valued properties, is to put them into a blanket loan, wait for the properties to appreciate in value, usually what ends up happening, and then a year, two, three down the road, now they're looking to refinance out of the blanket loan, now the properties are worth much more than 75, 80, or 100, 000, and if they decide to keep them, now they're going to refinance usually into a regular DSCR loan. And, uh, keep the whole, uh, process. All right. I don't see any other questions, but yeah, absolutely. And I think, uh, Jose, like you touched on, you've had some deals where this literally happened to you and you, you essentially turned a, you know, I'm only looking for a tiny loan into, you know, a half a million dollar loan that accomplished the goal of, of the borrower. Right. Absolutely. You know, he came to me with the, how low can you go in the loan amount? And I basically replied to him asking him, well, talk to me a little bit more about your objective here. And that's when he, and then I asked him also, what do you have available, right? For the transaction. That's when we realized that he really wasn't looking to buy one property. He was just wondering if he could get a property in that price range. And I replied to him that yes, he could do it, but only through a blanket loan. So why doesn't he go and buy several? And he said, well, it sounds like a great idea. And he wanted, he put seven properties under contract from the same seller. And to note, you know, this is the beautiful thing on this, the DSCR. On that portfolio was over 2. 0, right? That's pretty amazing. We're talking properties for 90, 000, 90 something thousand dollars, uh, duplexes. Mind you. That we're renting each side for like 1, 200. So it was just a, uh, an amazingly incredible purchase. Uh, but here's the, the, the ironic thing too, right? The properties had been on the market for several months, probably five or six months, because no one had provided the solution for the financing. I'm pretty sure the only solutions being provided to borrow is where you got to buy cash or hard money. Right. Hard money, 40 percent high interest rate, 50 percent high interest rate, short term loan. I got to do it again in two, three years. Uh, versus, uh, the DSCR that we got for him, which was at a super low rate. It was like in the fives and it was a 25 percent down. So it was a total home run for the borrower and for everybody involved. And, you know, I think something to, something to keep in mind, Is that this is actually more common than you would think as far as people have a lot of properties, right? I think some loan officers hear this and say, oh, that's the, you know, somebody has to have a ton of properties, right? But uh, it's actually more common than you would think now, you know, the burr craze and the real estate investing It's all the the rage right now, right? So a lot of people are wanting to buy up a whole bunch of properties or already have a whole bunch of properties. Um, I, go ahead. In some cases, be aware that the seller may only want to sell them all in one shot as well. So, if you're coming and you want to pick and choose, let me get these two and it's not going to work. So then you also need the solution to allow you to buy all of the properties in one shot from, from the seller. Right. Okay. We do have some more questions coming in. So question, are there any rules as far as proximity, the properties to each other? The only rule is the state. They have to be in the same state. That's it. See. Uh, kind of a long question here. I've been looking at some apartment building websites came across the portfolio 14, uh, in the town where I'm from, looks like a commercial real estate firm, do agents at firms like this know about these loans? Well, sometimes they do. Sometimes they don't. That's the great thing about building the relationships. with the agents is that it's our job to empower them with the knowledge. And believe me when you do, they will become your referral partners, right? They're going to like all of the tools and solutions that you're going to be providing. Uh, so definitely that's why I say, uh, this is one of the good niches to concentrate on because, uh, there's not much awareness of this product. All right. Well, thank you for your questions. We definitely appreciate it. A great thing to know about here. And that actually is a great point at the end to make sure you reach out to not only your regular realtor partners, but it's a great opportunity to reach out to commercial realtors and people that might specialize more in working with investors. Absolutely. If you see those properties out there, Uh, what you should be doing is reaching out to those agents with your financing solutions for their listing. So, if you see somebody has that portfolio listed, send, you know, reach out to them, tell them about the great option that you have for any buyers that may be looking to buy the portfolio and, uh, you can rest assured they're probably going to be referring you to any buyers that come looking at that property, uh, as an outlet for financing. Yeah, absolutely. That's a, a big part of it. Uh, right. Is that they're, they're looking for somebody to finance the buyers that are coming to them because they don't, they don't have options. And the more people who can finance it, the higher the price they're going to be able to sell it for. Right. So the listing agent is all for having more financing options available to tell people, right. Um, let's see here. Question coming in from Jeremy. Are these business purpose loans that can be originated anywhere, or is it limited to the States? LO has an NMLS license is. Well, they are business purpose loans. Usually, uh, the um, the portfolio loans that I was going over today are DSCR closing in an entity. So, you would be able to originate those business purpose loans as business purpose loans. Not in all states. Remember, you got to check, you know, check the laws in each state, but you know, a lot of them allow you to do business purpose loans. All right, well, let's go ahead and wrap it up then. Thank you everybody for tuning in and thank you for the questions. Remember that we do this every Tuesday, Wednesday and Thursday at 12 p. m. Eastern where we go through a new loan officer training topic. So we will see you all next week with some new topics. Appreciate you tuning in and we'll see you next week at 12 p. m. Eastern on Tuesday for the next episode of the loan officer training series with the Mortgage Calculator.