Hard-money lenders face uncertain future - Business

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Aug. 07, 2009
Copyright © Las Vegas Review-Journal

Hard-money lenders face uncertain future

By JOHN G. EDWARDS
LAS VEGAS REVIEW-JOURNAL

To put a twist on rock singer Huey Lewis' hit, the heart of hard money is still beating -- but just barely.

Hard-money lenders, sometimes called private lenders, solicit money from individual investors to make short-term mortgage loans backed by real estate.

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Hard-money lenders, like the developers who borrowed from them, benefited from the boom in real estate. However, developers and lenders were hammered when real estate values crumbled in the wake of the subprime residential mortgage crisis.

The Mortgage Lending Division estimates that 90 percent or more of the loans made by hard-money lenders during the boom times are now delinquent.

At the end of June, hard-money lenders in Southern Nevada had 506 delinquent loans totaling $1.6 billion, according to the division. The loans were 60 days past due or longer, excluding those that have been foreclosed. During the first six months of the year, hard-money lenders in Southern Nevada originated 126 loans totaling $29 million.

Contrast that total to the 120 hard-money loans totaling $286.2 million that were made in March 2007 alone, just before the collapse of the real estate sector.

The area has 12 hard-money lenders who made no loans during the first six months of the year.

Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, predicts that both the local real estate and hard-money lending markets will recover later, rather than any time soon.

The local economist does see some signs of economic improvement nationally.

"(But) I don't see things in Las Vegas picking up until the national economy does," Schwer said.

He said the local real estate sector may never bounce back like it was.

"I don't think (real estate businesses) will come back quickly. I don't think it will come back the way it was," Schwer said.

Homeowners are selling houses for less than the cost of new construction, making it tough for builders to justify new projects, he said.

In addition, a large inventory of unsold and foreclosed homes is depressing housing prices, he said.

Other analysts mention two additional factors. Retirees who once received double-digit interest rates from investments in hard-money loans to developers are reeling from millions of dollars in losses.

In addition, hard-money lenders will likely recognize the significance of Tuesday's guilty plea by Joe Milanowski, 48, a former owner of failed hard-money lender USA Capital.

Attorneys for Milanowski negotiated a plea agreement in return for a prosecution recommendation that Milanowski be sentenced to 12 years in prison.

U.S. Attorney Greg Brower issued a statement, noting that his office "will be vigilant in pursuing individuals and companies who abuse their positions of trust to facilitate crimes."

A developer, speaking anonymously, said the Milanowski case could be the final blow for hard-money lenders here.

Hard-money lenders, who treat investors' money like it was their own, he said, now must realize that criminal prosecution is a real risk in Southern Nevada.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. Pitbull Mortgage School wrote on August 14, 2009 07:17 AM: On September 3rd the National Hard Money Convention is taking place in Las Vegas inside the Rio Hotel and Casino. To be part of it please call 858 736 7788 http://www.pitbullseminars.com jcm wrote on August 07, 2009 02:43 PM: joebama, saying that the government spends like drunken sailors is an insult to drunken sailors every where ! Upside Down wrote on August 07, 2009 02:23 PM: There's nothing wrong with hard money loans as long as everyone knows that's what they are. Higher risk equals higher return, but hey, the risk just might bite you. There will always be hard money lenders. The problem comes when you try to sell a risky loan as a safe bet. This is what created the housing bubble and why it burst. They packaged risky loans as A paper on the secondary market. And the Bush administration and Congress not only let them do it, but cheered them on. roger wrote on August 07, 2009 12:22 PM: It's a double edged sword those no doc loans. These loans basically lifted just about everybody into the qualified buyer's pool and that is what tipped the scale between supply and demand. More buyers equals increased demand, and increased demand means prices went thru the roof. Taking these loans away effectively removed a large number of people from purchasing a house. Demand will remain low as will our house values. The industry was ripe for shenanigans, nobody was minding the store and it don't take a genius to figure out any buyer was a qualified buyer with no doc loans. The beauty of it all was after the real estate professional fudged the docs, closed the sale and got their commission, they were free and clear, no hassle and no liability. After all the customer signed off on the docs being accurate, right ? We need something comparable to no doc loans to get our equity back. If we have to rely in more logical factors to determine our home values, like local wages and quality of life, we are all doomed. Joe Bama wrote on August 07, 2009 11:44 AM: Oh!So that is the reason taxes are so high. Foolish me,i thought it was government spending like drunken sailors,well learn something new every day i guess. Yes Full Doc wrote on August 07, 2009 08:05 AM: The reason taxes are so high is that not everyone is paying what they should. These tip earners that underreport should be required to do full doc loans. What they are telling the mortgage broker is that I really make 200k, but I told the government I made 125k. Wink. Wink. Anyone that disagrees is supporting higher taxes. HELEN WEILS wrote on August 07, 2009 07:46 AM: HARD MONEY LENDERS ARE SIMILAR TO CHECK CASHING STORES. OUTLAWING THEM WILL ONLY INCREASE THE LACK OF FINANCING CHOICES IN NEVADA. BETWEEN THAT AND BUCKTOOTH BUCKLEYS LAW THAT ALL LOANS MUST BE FULL DOC LOANS WHICH KNOCKS OUT WAITRESSES, AND OTHER TIP EARNERS MEANS IT MAY NEVER TURN AROUND IN LAS VEGAS REAL ESTATE. Housing wrote on August 07, 2009 06:05 AM: The glut of tiny tract homes on zero size lots is what's causing the biggest problem in Nevada. Stupid bankers loaning money on hard to sell property, and then trying to resell after lowlife idiots destroy entire neighborhoods. There will always be hard money lenders, because what the banks and our government are doing now is transparent as could be. Tons of great deals on raw building lots. Cash is KING now more than anytime is recent memory. Downturn wrote on August 07, 2009 04:41 AM: They call 'em "Hard Money Lenders" 'cause these days, it's hard to get your money back! Jackov wrote on August 07, 2009 03:56 AM: I make commercial hard money loans. Businesses is great.