June 27, 2024 • 29 mins
Welcome to "Loan Officer Training," the podcast dedicated to empowering professionals in the mortgage and lending industry. In this episode, titled "How to Structure a Blanket (Portfolio) Loan," we delve into the complexities and advantages of blanket loans. Learn how to effectively structure these loans to cover multiple properties under a single mortgage, streamlining the process for investors and property managers.
Our expert guests will discuss the key components of blanket loans, including loan-to-value ratios, interest rates, and repayment terms. We'll also cover the necessary documentation and risk assessment strategies to ensure a smooth approval process.
Whether you're a seasoned loan officer or just starting out, this episode will equip you with the knowledge and skills to offer comprehensive financing solutions to your clients. Tune in and discover how to master the art of structuring blanket loans to support real estate investment portfolios.
Join The Mortgage Calculator at https://themortgagecalculator.com/join
About The Mortgage Calculator:
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 thousands of mortgage programs using Alternative Income Documentation
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 thousands of Non-QM mortgage loan program variations 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 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and US
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording Jun 27, (00:00):
All right.
(00:00):
So welcome everyone.
My name is Kyle Hiersche.
I'm the COO of The mortgagecalculator joined here by our
sales manager, Jose Gonzalez,and we are a lender that
specializes in non QM loans.
And what we do every Tuesday,Wednesday, and Thursday evening
at 7 p.
m.
Eastern on the show is a deepdive into a loan officer
training topic.
Tonight's topic is how tostructure a blanket loan.
(00:20):
I'll go ahead and let Jose takeit from here and take us through
it.
So go ahead.
Good evening, everybody.
for joining us for tonight'straining on how to structure a a
blanket loan, right?
Blanket, AKA portfolio loan.
(00:42):
Now, recommendation, to our MLOsout there.
This is definitely one of theniches that I would recommend
that you con that youconcentrate on.
If you're thinking aboutmultiple income streams on
different types of loans,blanket loans are, not that many
options out there.
Not that many, MLOs really knowwhat a blanket loan is.
(01:05):
You tell them blanket loan,they're not going to know you're
talking about a loan for aportfolio of property.
That's what we're talking aboutwhen we're talking about a
portfolio loan.
We're not, we're not talkingabout portfolio in the
traditional sense that we'rethinking about, like a portfolio
loan where the investor or thelender has that loan.
(01:28):
In their portfolio, usually thatmeans like a private type loan
with their own individualguidelines.
In this case, what we mean byportfolio is for a portfolio of
properties, multiple properties,so completely blank alone with
as little as two properties.
So let's get right into it and Ican break it down for you, but
(01:53):
definitely I would recommendthis is one of the niches to
concentrate on because thebeautiful thing about, about
originating the portfolio loan.
The reason that it's usuallyoriginated is because they are
lower valued properties thatcannot be finance in any other
way.
(02:14):
And usually those propertieswill appreciate in value.
To the point that the, uh,investor at some point will want
to refinance out of thatportfolio of properties into
individual loans.
Usually the SCR also known asdebt service coverage ratio
loans, which is a great play.
(02:36):
You get them into the portfolio,right?
Having them close on thispurchase of properties that they
would not have been able toclose on as individual
purchases.
And then a year or two or threedown the road, whatever it may
be, the investor usually willwant to cash out, refinance all
(02:57):
of those properties.
And the only way they're goingto be able to do it is to
refinance them out of theportfolio.
loan, either one or twoproperties or refinance
everything out.
And that would involve having tohave a carve out, which is one
of the phrases I'm going toexplain now in the presentation.
(03:17):
Definitely having a carve out,clause in a portfolio loan is
critical.
Not all portfolio loans have it,but if they do have it, that
means that you would be able toindividually pull One of the
properties out of the portfolio,usually with some additional
restrictions and then, maintainthe other properties still in
(03:41):
the portfolio.
If there's no carve out feature,you will not be able to pull
those properties out of theportfolio and you would either
have to refinance everything orpay off everything.
You can't just do one property.
So let's break it down for you.
Now what exactly is a blanketloan, right?
(04:03):
Also known as like I wasexplaining our portfolio loan.
This is where, there is somemis, understandings regarding
how a blanket loan works.
So a blanket loan, also known asa portfolio loan is a loan
encumbering multiple individualproperties, each with their own
(04:28):
folio number.
Now, what does that mean?
That means that.
In a portfolio, each propertythat is included in a blanket
loan is going to be anindividual independent property.
These properties could be one tofour unit properties, but the
main thing to note is thatthey're each property is an
(04:50):
individual property.
With its own folio number.
So this is not like saying it'sa multifamily property that has
10 units.
So you're going to do a blanketloan for a, for 10 units.
No, the multifamily property isone property that has 10 units
(05:11):
and it only has one folionumber.
So you would finance thatproperty with a regular.
Let's say a commercial loan, butyou're not going to finance it
with a blanket loan that is formultiple individually folio or
individually titled property.
So again, it's not alone formultifamily properties that have
(05:33):
multiple units tied together.
To the same folio number.
And obviously it is only forinvestment properties.
Can't mix and mingle and have aprimary with those, investment
properties in the portfolio.
In a portfolio loan, blanketloan, you're only going to have
(05:54):
one monthly payment becausethere is only one note, right?
There's only one promissorynote, for the loan.
and states the principal andinterest states the overall loan
amount and that's it only onepayment which is also the
attraction an investor buying 10or 15 properties may not may
(06:16):
have a bunch of other propertiesalready and may not want to be
bogged down with paying 15individual loan payments every
month when they can just pay oneloan.
So what are some of the loantransaction specific details.
(06:38):
Now, one thing that I want tomake note here is that, with
this, these transaction detailsthat I'm, showing here are not
from one specific blanket loan,grabbing, mixing.
different, parameters of thedifferent blanket loan options
that we have so that if one of,you know, you should fall into
(07:02):
one of those categories, yeah,we'll be able to do the loan,
but they're going to bedifferent, you know, different
requirements for each optionbecause these would all be
different options.
We have multiple blanket loanoptions.
So there is not one homogeneousguideline.
for the blanket loan option thatwe have because we have multiple
(07:23):
blanket loan options, each withtheir own maximum LTVs, maximum
loan amounts.
So when I'm telling you here,maximum LTV up to 80 percent for
purchase, that's going to be forour best case LTV option.
Because for example, the optionthat has a minimum property
value as low as 67, 000, andthat also allows as low as two
(07:47):
properties.
In a blanket loan, only goes upto 75 percent LTV, but also
happens to be the option thatallows, DSCR minimum below 1.
0.
Actually, it's a no ratio DSCRup to, I believe, a 500, 000
loan amount for that blanketloan option.
(08:08):
So keep that in mind.
So yes, we can go up to 80percent LTV for a purchase and
up to 75 percent for a cash outrefi.
Like I just mentioned, we dohave DSCR options below 1.
0 available.
This blanket loan options arefor one to four unit properties
only.
You can mix and mingle in theportfolio one unit properties
(08:30):
and two unit properties andthree unit properties and four
unit properties, but you can'tbring in a five plus unit
property into the portfolio,unfortunately.
Minimum property value as low as67, 000 because we do have a
minimum loan allocated perproperty of 50, 000.
(08:53):
And if you divide 50, 000 by75%, which is the maximum LTV
for that option, you get 66, 000in change.
So I rounded up to 67, 000 asthe minimum property value.
And, and this particular optionthat does allow as low as 67,
000 will allow us a, a propertycount as low as two properties.
(09:18):
You're going to have a blanketloan of two properties, a
minimum credit score as low as650.
For the 75 percent LTV optionthat I just mentioned there and
720, excuse me, for the 80percent LTV option, which is
going to have obviously slightlybetter interest rates, even at
(09:42):
80 percent LTV.
Blanket loans will usually haveonly one closing cost from the
title company, closing for otherproperties.
So that's one of the, benefitsor one of the savings that you
get from a blanket loan.
But you do usually have to haveindividual title policies.
(10:04):
For each property, becauseremember they are individual
property, one blanket loan, butmultiple properties, each with
their own separate phone number.
And obviously each with theirown title policy.
Now, like I was mentioning, yes,savings on the closing cost from
title, but be aware that therewill be a closing.
(10:28):
Or funding fee, they call itdifferent names from the lender
and that closing or funding feeWill vary depending on the
number of properties So they'llusually put from one to five
properties is a certain dollaramount From six to ten
properties is another dollaramount and so forth and so on
(10:49):
regarding the closing or fundingfee.
Why and why is that?
Well because there's multipleproperties that they have to
review the the title work on andthe and the appraisal.
Right.
So there's more work involved.
So they're going to charge thatextra fee.
So that closing or funding feewill offset some of the savings
(11:10):
of not having 15 closing fees,but you're usually going to save
with not having 15 closing fee.
And paying, let's say you have10 properties in the portfolio.
You may have a funding fee oflike 1, 200.
That's still cheaper than 5,000.
If you got 10 closings out of.
(11:31):
average of 500, settlement feeper closing.
That's 5, 000.
So you still do have a savingsthere in that respect on the
closing fees.
Maximum amount is 2 million, butwe do have higher loan amounts
possible by exception.
Usually when they do grant theexception, it's going to mean an
(11:54):
LTV reduction and possibly, sometype of a fee.
For granting the exception,that's basically like off sheet
price off balance off rate sheetpricing.
So, let's talk about some of thebenefits of the blanket loan,
because in the last slide, I'mgoing to reconcile and talk
(12:15):
about the challenges of ablanket loan.
because there are a lot of, youknow, not a lot of, but there
are some misconceptions aboutthe blanket loan.
I mean, there, you know, somepeople are sometimes under the
impression that it's going tosave you a whole lot of money.
And like I was just mentioning,it does save you off of the
(12:35):
closing fees.
And it does save you time andeffort of not having to.
Provide the same documentsmultiple times because you have
multiple loan submissions.
So let's, let's break down thebenefits.
So I don't repeat thesebenefits, but, bullet point
number one is, facilitating, andthis is the main benefit of a
(12:58):
blanket loan.
I already touched on this one.
In the first slide isfacilitating the financing of
low value properties thatusually cannot be individually
financed.
So, example, and I've had thisexample myself with blanket
loans that I put together.
(13:18):
10 properties with a 75, 000value can easily be financed as
a 562, 500 blanket loan at 75percent LTV.
Right.
Because we're not meeting the ahundred thousand threshold for
property that would be requiredfor the 80 percent LTV option,
(13:43):
but 75, 000 can, would qualifyfor the 75 percent LTV options.
So we can do that, but one 75,000 property, with a 60, 000
loan will be very difficult.
The finance, right?
There aren't really too manyoptions at all for a 60, 000
(14:08):
DSCR loan.
They're usually going to, it'susually 75, 000 is the minimum
loan amount for that category,bullet point.
So, so again, let me justreemphasize the bullet point.
Number one is that's the maingoal.
I had a borrower call me, youknow, and ask, you know, what's
(14:31):
the lowest that we can go.
On a, on a, on a property,right?
Loan amount, property value typedeal.
So before I, you know, I, Ididn't straight out answer the
question.
I asked him back.
Another question was I alreadythinking to myself, okay,
there's two reasons why theborrower is going to ask me
what's the lowest amount we cango either.
(14:51):
He's actually trying to financea 80 and 90, 000 purchase, you
know, Or, or, or, or what, youknow,'cause he may not have
known about the blanket loan andhe, this borrower apparently did
not know about the blanket loan,but he was wanting to buy more
than one.
That's just it.
He didn't wanna buy just one.
He wanted to find out what's thelowest we could go, because
(15:14):
apparently he had seen multipleproperties in the lower price
ranges.
So instead of immediatelyanswering him his question, I
asked him, well, what is theobjective that you're trying to
reach?
Are you just trying to buy oneproperty of 80 or 90, 000 or are
you trying to buy multipleproperties?
What is the budget that you haveavailable for the down payment
(15:36):
and closing costs, right?
That's, that's the, the decidingfactor, you know, the funds
available for the down payment,closing costs and reserves.
Is going to determine themaximum, loan amount and sales
price for the portfolio.
So he promptly replied, well, Igot, I think he mentioned he had
like 400, 000, four or 500, 000to play with.
(15:58):
So I'm like, Oh, great.
With that amount of money.
And I did, I reverse engineeredthe transaction quickly.
And I'm like, well, with thatamount of money.
We can go.
I can't remember the exactamount.
I told him 1.
2, 1.
3 million dollar purchase at a75 percent loan to value and
your money should cover morethan what you need.
So he's like, Oh, that's great.
(16:19):
Great news.
I provided him a quote.
He loved it.
And I'm going to tell you whathe already had his marbles lined
up because, two, three dayslater, I'm getting contracts.
You know, he went ahead and, andput, I think, seven or eight
properties under contract now.
All the properties have to befrom the same seller.
By the way, you can't have aportfolio loan purchase trying
(16:42):
to close with multiple sellersbecause then that would mean
multiple distributions, uh, atthe closing under one HUD.
Which, uh, would not bepossible.
It has to be one seller or theycan be multiple sellers of the
same, of the same properties,but not different properties
from different sellers.
(17:04):
So in that case, he ended up,doing a portfolio loan of like
600, 000.
And I didn't dismiss the call,you know, thinking, oh, this
guy, you know, 75, 000 on, youknow, I don't know.
No, I, I got to the bottom of itand.
What he really wanted to do was,was great and I helped him reach
his objective.
So you got to ask thosequestions.
(17:25):
So bullet point number two,another benefit of the blanket
loan I touched on is already issimplified mortgage paperwork
process.
As you do not have to submit thesame documents multiple times
for multiple loans to multiple,possibly even to multiple loan
officers.
Right.
So you're getting all confusedhaving to send, you know, a
(17:48):
bunch of documents out, stuffkeeps getting lost.
You keep getting asked for thesame stuff, wasting a lot of
time, chasing a lot of papersnow could be pretty time
consuming and frustrating.
And again, you have, I touchedon this as well, the cost and
time savings due to theconsolidated paperwork.
(18:10):
And I already touched on thefact that there are additional
expenses such as funding feesand closing fees based on the
number of properties that wouldeat up some of the savings.
Another benefit, this is onethat most people do not realize
that, you know, when you'retrying get financing, there are
limits.
That some of the inve, financingconduits will put on the
(18:34):
borrower as to number ofproperties that they could own
that are financed, right?
There could be a limit to that.
So if you consolidate, forexample, let's say you're gonna
do the, you need to free up someof your individual borrowing
capacity.
So you could put a bunch of yourproperties into a portfolio
(18:56):
loans that have loans on themright now to free up your loans
that way.
Or if you already have 10 or 12properties or whatever, maybe
the limit has been reached.
You could then do your purchaseas a portfolio loan and one
additional loan.
That's the issue there of havingtoo many properties individually
financed.
(19:18):
And another benefit that mostpeople don't realize is You can
access additional equitiesbecause let's say remember the
portfolio is a pool ofproperties and the loan to value
is a combined loan to value ofall the properties which means
you could have some propertiesthat are at a 40 or 50 percent
(19:39):
LTV and you could have otherproperties that are at a 95
percent LTV right but then whenyou combine the overall
portfolio value and the overallloan amount you could be at 75
percent LTV.
Or 80 percent depending what youneed to be for which portfolio
loan option and you're good togo.
So most people don't think aboutthat one, right?
(20:01):
But this is a really good,reason for, closing on a blanket
loan.
So now in my last slide here,We're going to discuss what are
the challenges presented by ablanket loan, right?
I already, touched on the mainone, right?
(20:24):
This is the one that unless youproperly explain it to your
borrower and unless you yourselfresearch this, particular
feature of the blanket loan andare able to properly consult
your borrower.
You may have a real big problemif you close on the loan and
then the borrower reaches out toyou a little bit later and says,
(20:45):
Hey, you didn't tell me that allmy properties were locked up in
this one loan that I, that Icouldn't release any of these
properties individually.
Because remember, theseinvestors are in the business
usually of turning propertiesover for a profit.
They're going to hold them, cashthem out, eventually sell them.
And sometimes somebody makessomebody an offer.
They can't refuse.
(21:06):
They want to sell the propertybecause it's a great offer.
They're going to make all thismoney.
Now, all of a sudden they'relike, Nope, you can't, we can't
partially release, one of the,you know, release one of the
properties individually fromthe, from the blanket loan.
It's all or nothing.
So we do have options that allowyou to carve out.
But for example, the option thatI mentioned to you with the
(21:28):
lowest credit score options, six50.
that also has a DSCR optionbelow 1.
0, that option does not havecarve out feature, but the 80
percent LTV option does have acarve out feature.
So again, make sure that youunderstand what the carve out is
(21:51):
because bullet point number one,The main disadvantage to the
blanket loan is that it may bedifficult to sell or refinance
individual properties without apartial release clause, which is
a carve out clause.
This is referred to as a carveout.
Some blanket loans allow it withrestrictions like paying down an
additional amount towards thepayoff of the property being
(22:16):
carved out to, as they say,Rebalance the portfolio.
So like I recall in someportfolio loan options that we
have, they'll say, okay, you gotthe, you owe a hundred thousand
dollars on that property thatyou're, you're carving out fine.
And you've got to pay the ahundred thousand plus, you've
(22:37):
got to pay an extra 20 percentof, you know, carve out fee to
rebalance the portfolio.
That's not a fee.
You're just paying down thebalance, an extra 20 percent of
that a hundred thousand.
So it's not like a fee.
They're just going to make youpay a little bit extra off.
Now, and other big challengesthat note that blanket loans are
(22:57):
limited by state.
In other words, each state isgoing to have different
regulations on how they treat ablanket loan.
So if, for example, you haveproperties in three different
states that you're trying to puttogether into a blanket loan.
You're going to have, you're,you're going to need to get
three different blanket loans,assuming that's what would end
(23:20):
up happening, that you'd haveenough property for each loan.
That would be a blanket loan,but it isn't you, whichever, if
it's a blanket loan or not ablanket loan, you would need
three separate loans.
Uh, you cannot have propertiesfrom different States on the
same blanket loan.
And as I touched on a little bitearlier as well, the properties,
(23:41):
if it's a purchase, Theproperties need to be purchased
from the same seller.
And again, this has to do withthe laws to be able to legally
close the file, right?
At that closing, they're goingto issue the payment to the
owner of the properties, right?
And it can only be, you know,one entity.
(24:03):
Or multiple owners and it'smultiple owners of those
properties, but you cannot have,but they have to be the owners
of the same properties, right?
So by properties up to have allthe same owner, you cannot have
two different owners unrelatedwith multiple different
properties in the same portfolioloan closing, because the law
(24:23):
would not allow you to make thatdistribution to, you know, to
different entities withdifferent properties on that
same closing.
So that, that would be a big nogo.
Okay.
One other, uh, another challengeof the blanket loan is that keep
(24:44):
in mind that all of theproperties serve as collateral
for each other.
So an issue with one propertycould jeopardize the whole
portfolio.
So like if one property ends upgetting, um, a code violation
lien or something like that.
And that has to be satisfied.
That code violation lien goesagainst the portfolio and in
(25:07):
essence could encumber everyproperty in the portfolio,
right?
So keep in mind this is a jointeffort here.
And last bullet point here tocover regarding challenges of
the blanket loan is that youknow, similar to what I just
mentioned about, you know, oneproperty could damage the
(25:28):
portfolio if one of theproperties, if you're just
trying to close on the loan, andone of the properties has a
clouded title, then you can'tclose on the other ones as well.
So in essence, the only way toclose on that loan would be to
remove That one property fromthe portfolio purchase, right?
(25:49):
And then that may mess up thewhole transaction because the
seller may say, wait a minute,the whole deal was, I'm selling
you all, you know, all 10 of myproperties.
I don't want to sell you nine ofthe properties and have to keep
and try to sell one of theproperties individually because
it's going to be tough becausethat's only a 60 or 70, 000
property and they know howdifficult it is.
For those lower valuedproperties to sell.
(26:11):
So keep those challenges inmind.
All the properties gotta passinspection of every time to be
able to close on the portfolioloan.
So, like I mentioned, definitelylook towards blanket loan as one
of the good niches, try tospecialize in as a loan
originator.
And I can guarantee you're goingto get a steady stream of
(26:34):
business of underservedborrowers are going to be more
than happy to meet to meet youand be a very captive audience.
All right.
Thank you, Jose.
Okay.
So, let's look at some questionshere.
So, I, we have a question here.
Is this non QM?
(26:55):
So, no PMI.
Will you ever remember anythingthat's non qualifying, right,
and is going to be non QM?
So, Jose, you want to touch on?
Yeah, I mean, all of these, forblanket loans are non QM loans.
There is nothing conformingabout them.
So, yeah, definitely never anyPMI applicable.
Even though the maximum LTV forthe blanket loan is 80%.
(27:17):
So you really wouldn't have PMIapplicable due to LTV, but never
any PMI applicable on any non QMloans, regarding non warrantable
condos being financed.
Yeah.
I mean, there's going to be aquestionnaire just like with
every other loan.
Right.
And then, uh, depending on theloan to value, they're going to,
it's going to make be thedetermination if it's going to
be a full review condo loan or alimited review condo loan, which
(27:43):
is usually what you're going toneed.
If you have a non warrantablecondo because usually what's
going to make a non warrantableis going to be no reserves Um
high percentage of uh renters toowner occupants, for example
More than one entity could own acertain percentage of the units.
Those are usually the ones thator litigation But litigation
(28:04):
doesn't get resolved by limitedreview though All right.
I think the other questions werePretty much already answered
there after they were asked.
So I think we can go ahead andwrap it up then.
Great training here today.
Uh, remember that we do this at7 p.
m.
Eastern time every Tuesday,Wednesday, and Thursday evening,
(28:25):
where we go through a new loanofficer training topic.
So we will see you next week forthe next episode of the loan
officer training series with themortgage
All right.
(00:00):
So welcome everyone.
My name is Kyle Hiersche.
I'm the COO of The mortgagecalculator joined here by our
sales manager, Jose Gonzalez,and we are a lender that
specializes in non QM loans.
And what we do every Tuesday,Wednesday, and Thursday evening
at 7 p.
m.
Eastern on the show is a deepdive into a loan officer
training topic.
Tonight's topic is how tostructure a blanket loan.
(00:20):
I'll go ahead and let Jose takeit from here and take us through
it.
So go ahead.
Good evening, everybody.
for joining us for tonight'straining on how to structure a a
blanket loan, right?
Blanket, AKA portfolio loan.
(00:42):
Now, recommendation, to our MLOsout there.
This is definitely one of theniches that I would recommend
that you con that youconcentrate on.
If you're thinking aboutmultiple income streams on
different types of loans,blanket loans are, not that many
options out there.
Not that many, MLOs really knowwhat a blanket loan is.
(01:05):
You tell them blanket loan,they're not going to know you're
talking about a loan for aportfolio of property.
That's what we're talking aboutwhen we're talking about a
portfolio loan.
We're not, we're not talkingabout portfolio in the
traditional sense that we'rethinking about, like a portfolio
loan where the investor or thelender has that loan.
(01:28):
In their portfolio, usually thatmeans like a private type loan
with their own individualguidelines.
In this case, what we mean byportfolio is for a portfolio of
properties, multiple properties,so completely blank alone with
as little as two properties.
So let's get right into it and Ican break it down for you, but
(01:53):
definitely I would recommendthis is one of the niches to
concentrate on because thebeautiful thing about, about
originating the portfolio loan.
The reason that it's usuallyoriginated is because they are
lower valued properties thatcannot be finance in any other
way.
(02:14):
And usually those propertieswill appreciate in value.
To the point that the, uh,investor at some point will want
to refinance out of thatportfolio of properties into
individual loans.
Usually the SCR also known asdebt service coverage ratio
loans, which is a great play.
(02:36):
You get them into the portfolio,right?
Having them close on thispurchase of properties that they
would not have been able toclose on as individual
purchases.
And then a year or two or threedown the road, whatever it may
be, the investor usually willwant to cash out, refinance all
(02:57):
of those properties.
And the only way they're goingto be able to do it is to
refinance them out of theportfolio.
loan, either one or twoproperties or refinance
everything out.
And that would involve having tohave a carve out, which is one
of the phrases I'm going toexplain now in the presentation.
(03:17):
Definitely having a carve out,clause in a portfolio loan is
critical.
Not all portfolio loans have it,but if they do have it, that
means that you would be able toindividually pull One of the
properties out of the portfolio,usually with some additional
restrictions and then, maintainthe other properties still in
(03:41):
the portfolio.
If there's no carve out feature,you will not be able to pull
those properties out of theportfolio and you would either
have to refinance everything orpay off everything.
You can't just do one property.
So let's break it down for you.
Now what exactly is a blanketloan, right?
(04:03):
Also known as like I wasexplaining our portfolio loan.
This is where, there is somemis, understandings regarding
how a blanket loan works.
So a blanket loan, also known asa portfolio loan is a loan
encumbering multiple individualproperties, each with their own
(04:28):
folio number.
Now, what does that mean?
That means that.
In a portfolio, each propertythat is included in a blanket
loan is going to be anindividual independent property.
These properties could be one tofour unit properties, but the
main thing to note is thatthey're each property is an
(04:50):
individual property.
With its own folio number.
So this is not like saying it'sa multifamily property that has
10 units.
So you're going to do a blanketloan for a, for 10 units.
No, the multifamily property isone property that has 10 units
(05:11):
and it only has one folionumber.
So you would finance thatproperty with a regular.
Let's say a commercial loan, butyou're not going to finance it
with a blanket loan that is formultiple individually folio or
individually titled property.
So again, it's not alone formultifamily properties that have
(05:33):
multiple units tied together.
To the same folio number.
And obviously it is only forinvestment properties.
Can't mix and mingle and have aprimary with those, investment
properties in the portfolio.
In a portfolio loan, blanketloan, you're only going to have
(05:54):
one monthly payment becausethere is only one note, right?
There's only one promissorynote, for the loan.
and states the principal andinterest states the overall loan
amount and that's it only onepayment which is also the
attraction an investor buying 10or 15 properties may not may
(06:16):
have a bunch of other propertiesalready and may not want to be
bogged down with paying 15individual loan payments every
month when they can just pay oneloan.
So what are some of the loantransaction specific details.
(06:38):
Now, one thing that I want tomake note here is that, with
this, these transaction detailsthat I'm, showing here are not
from one specific blanket loan,grabbing, mixing.
different, parameters of thedifferent blanket loan options
that we have so that if one of,you know, you should fall into
(07:02):
one of those categories, yeah,we'll be able to do the loan,
but they're going to bedifferent, you know, different
requirements for each optionbecause these would all be
different options.
We have multiple blanket loanoptions.
So there is not one homogeneousguideline.
for the blanket loan option thatwe have because we have multiple
(07:23):
blanket loan options, each withtheir own maximum LTVs, maximum
loan amounts.
So when I'm telling you here,maximum LTV up to 80 percent for
purchase, that's going to be forour best case LTV option.
Because for example, the optionthat has a minimum property
value as low as 67, 000, andthat also allows as low as two
(07:47):
properties.
In a blanket loan, only goes upto 75 percent LTV, but also
happens to be the option thatallows, DSCR minimum below 1.
0.
Actually, it's a no ratio DSCRup to, I believe, a 500, 000
loan amount for that blanketloan option.
(08:08):
So keep that in mind.
So yes, we can go up to 80percent LTV for a purchase and
up to 75 percent for a cash outrefi.
Like I just mentioned, we dohave DSCR options below 1.
0 available.
This blanket loan options arefor one to four unit properties
only.
You can mix and mingle in theportfolio one unit properties
(08:30):
and two unit properties andthree unit properties and four
unit properties, but you can'tbring in a five plus unit
property into the portfolio,unfortunately.
Minimum property value as low as67, 000 because we do have a
minimum loan allocated perproperty of 50, 000.
(08:53):
And if you divide 50, 000 by75%, which is the maximum LTV
for that option, you get 66, 000in change.
So I rounded up to 67, 000 asthe minimum property value.
And, and this particular optionthat does allow as low as 67,
000 will allow us a, a propertycount as low as two properties.
(09:18):
You're going to have a blanketloan of two properties, a
minimum credit score as low as650.
For the 75 percent LTV optionthat I just mentioned there and
720, excuse me, for the 80percent LTV option, which is
going to have obviously slightlybetter interest rates, even at
(09:42):
80 percent LTV.
Blanket loans will usually haveonly one closing cost from the
title company, closing for otherproperties.
So that's one of the, benefitsor one of the savings that you
get from a blanket loan.
But you do usually have to haveindividual title policies.
(10:04):
For each property, becauseremember they are individual
property, one blanket loan, butmultiple properties, each with
their own separate phone number.
And obviously each with theirown title policy.
Now, like I was mentioning, yes,savings on the closing cost from
title, but be aware that therewill be a closing.
(10:28):
Or funding fee, they call itdifferent names from the lender
and that closing or funding feeWill vary depending on the
number of properties So they'llusually put from one to five
properties is a certain dollaramount From six to ten
properties is another dollaramount and so forth and so on
(10:49):
regarding the closing or fundingfee.
Why and why is that?
Well because there's multipleproperties that they have to
review the the title work on andthe and the appraisal.
Right.
So there's more work involved.
So they're going to charge thatextra fee.
So that closing or funding feewill offset some of the savings
(11:10):
of not having 15 closing fees,but you're usually going to save
with not having 15 closing fee.
And paying, let's say you have10 properties in the portfolio.
You may have a funding fee oflike 1, 200.
That's still cheaper than 5,000.
If you got 10 closings out of.
(11:31):
average of 500, settlement feeper closing.
That's 5, 000.
So you still do have a savingsthere in that respect on the
closing fees.
Maximum amount is 2 million, butwe do have higher loan amounts
possible by exception.
Usually when they do grant theexception, it's going to mean an
(11:54):
LTV reduction and possibly, sometype of a fee.
For granting the exception,that's basically like off sheet
price off balance off rate sheetpricing.
So, let's talk about some of thebenefits of the blanket loan,
because in the last slide, I'mgoing to reconcile and talk
(12:15):
about the challenges of ablanket loan.
because there are a lot of, youknow, not a lot of, but there
are some misconceptions aboutthe blanket loan.
I mean, there, you know, somepeople are sometimes under the
impression that it's going tosave you a whole lot of money.
And like I was just mentioning,it does save you off of the
(12:35):
closing fees.
And it does save you time andeffort of not having to.
Provide the same documentsmultiple times because you have
multiple loan submissions.
So let's, let's break down thebenefits.
So I don't repeat thesebenefits, but, bullet point
number one is, facilitating, andthis is the main benefit of a
(12:58):
blanket loan.
I already touched on this one.
In the first slide isfacilitating the financing of
low value properties thatusually cannot be individually
financed.
So, example, and I've had thisexample myself with blanket
loans that I put together.
(13:18):
10 properties with a 75, 000value can easily be financed as
a 562, 500 blanket loan at 75percent LTV.
Right.
Because we're not meeting the ahundred thousand threshold for
property that would be requiredfor the 80 percent LTV option,
(13:43):
but 75, 000 can, would qualifyfor the 75 percent LTV options.
So we can do that, but one 75,000 property, with a 60, 000
loan will be very difficult.
The finance, right?
There aren't really too manyoptions at all for a 60, 000
(14:08):
DSCR loan.
They're usually going to, it'susually 75, 000 is the minimum
loan amount for that category,bullet point.
So, so again, let me justreemphasize the bullet point.
Number one is that's the maingoal.
I had a borrower call me, youknow, and ask, you know, what's
(14:31):
the lowest that we can go.
On a, on a, on a property,right?
Loan amount, property value typedeal.
So before I, you know, I, Ididn't straight out answer the
question.
I asked him back.
Another question was I alreadythinking to myself, okay,
there's two reasons why theborrower is going to ask me
what's the lowest amount we cango either.
(14:51):
He's actually trying to financea 80 and 90, 000 purchase, you
know, Or, or, or, or what, youknow,'cause he may not have
known about the blanket loan andhe, this borrower apparently did
not know about the blanket loan,but he was wanting to buy more
than one.
That's just it.
He didn't wanna buy just one.
He wanted to find out what's thelowest we could go, because
(15:14):
apparently he had seen multipleproperties in the lower price
ranges.
So instead of immediatelyanswering him his question, I
asked him, well, what is theobjective that you're trying to
reach?
Are you just trying to buy oneproperty of 80 or 90, 000 or are
you trying to buy multipleproperties?
What is the budget that you haveavailable for the down payment
(15:36):
and closing costs, right?
That's, that's the, the decidingfactor, you know, the funds
available for the down payment,closing costs and reserves.
Is going to determine themaximum, loan amount and sales
price for the portfolio.
So he promptly replied, well, Igot, I think he mentioned he had
like 400, 000, four or 500, 000to play with.
(15:58):
So I'm like, Oh, great.
With that amount of money.
And I did, I reverse engineeredthe transaction quickly.
And I'm like, well, with thatamount of money.
We can go.
I can't remember the exactamount.
I told him 1.
2, 1.
3 million dollar purchase at a75 percent loan to value and
your money should cover morethan what you need.
So he's like, Oh, that's great.
(16:19):
Great news.
I provided him a quote.
He loved it.
And I'm going to tell you whathe already had his marbles lined
up because, two, three dayslater, I'm getting contracts.
You know, he went ahead and, andput, I think, seven or eight
properties under contract now.
All the properties have to befrom the same seller.
By the way, you can't have aportfolio loan purchase trying
(16:42):
to close with multiple sellersbecause then that would mean
multiple distributions, uh, atthe closing under one HUD.
Which, uh, would not bepossible.
It has to be one seller or theycan be multiple sellers of the
same, of the same properties,but not different properties
from different sellers.
(17:04):
So in that case, he ended up,doing a portfolio loan of like
600, 000.
And I didn't dismiss the call,you know, thinking, oh, this
guy, you know, 75, 000 on, youknow, I don't know.
No, I, I got to the bottom of itand.
What he really wanted to do was,was great and I helped him reach
his objective.
So you got to ask thosequestions.
(17:25):
So bullet point number two,another benefit of the blanket
loan I touched on is already issimplified mortgage paperwork
process.
As you do not have to submit thesame documents multiple times
for multiple loans to multiple,possibly even to multiple loan
officers.
Right.
So you're getting all confusedhaving to send, you know, a
(17:48):
bunch of documents out, stuffkeeps getting lost.
You keep getting asked for thesame stuff, wasting a lot of
time, chasing a lot of papersnow could be pretty time
consuming and frustrating.
And again, you have, I touchedon this as well, the cost and
time savings due to theconsolidated paperwork.
(18:10):
And I already touched on thefact that there are additional
expenses such as funding feesand closing fees based on the
number of properties that wouldeat up some of the savings.
Another benefit, this is onethat most people do not realize
that, you know, when you'retrying get financing, there are
limits.
That some of the inve, financingconduits will put on the
(18:34):
borrower as to number ofproperties that they could own
that are financed, right?
There could be a limit to that.
So if you consolidate, forexample, let's say you're gonna
do the, you need to free up someof your individual borrowing
capacity.
So you could put a bunch of yourproperties into a portfolio
(18:56):
loans that have loans on themright now to free up your loans
that way.
Or if you already have 10 or 12properties or whatever, maybe
the limit has been reached.
You could then do your purchaseas a portfolio loan and one
additional loan.
That's the issue there of havingtoo many properties individually
financed.
(19:18):
And another benefit that mostpeople don't realize is You can
access additional equitiesbecause let's say remember the
portfolio is a pool ofproperties and the loan to value
is a combined loan to value ofall the properties which means
you could have some propertiesthat are at a 40 or 50 percent
(19:39):
LTV and you could have otherproperties that are at a 95
percent LTV right but then whenyou combine the overall
portfolio value and the overallloan amount you could be at 75
percent LTV.
Or 80 percent depending what youneed to be for which portfolio
loan option and you're good togo.
So most people don't think aboutthat one, right?
(20:01):
But this is a really good,reason for, closing on a blanket
loan.
So now in my last slide here,We're going to discuss what are
the challenges presented by ablanket loan, right?
I already, touched on the mainone, right?
(20:24):
This is the one that unless youproperly explain it to your
borrower and unless you yourselfresearch this, particular
feature of the blanket loan andare able to properly consult
your borrower.
You may have a real big problemif you close on the loan and
then the borrower reaches out toyou a little bit later and says,
(20:45):
Hey, you didn't tell me that allmy properties were locked up in
this one loan that I, that Icouldn't release any of these
properties individually.
Because remember, theseinvestors are in the business
usually of turning propertiesover for a profit.
They're going to hold them, cashthem out, eventually sell them.
And sometimes somebody makessomebody an offer.
They can't refuse.
(21:06):
They want to sell the propertybecause it's a great offer.
They're going to make all thismoney.
Now, all of a sudden they'relike, Nope, you can't, we can't
partially release, one of the,you know, release one of the
properties individually fromthe, from the blanket loan.
It's all or nothing.
So we do have options that allowyou to carve out.
But for example, the option thatI mentioned to you with the
(21:28):
lowest credit score options, six50.
that also has a DSCR optionbelow 1.
0, that option does not havecarve out feature, but the 80
percent LTV option does have acarve out feature.
So again, make sure that youunderstand what the carve out is
(21:51):
because bullet point number one,The main disadvantage to the
blanket loan is that it may bedifficult to sell or refinance
individual properties without apartial release clause, which is
a carve out clause.
This is referred to as a carveout.
Some blanket loans allow it withrestrictions like paying down an
additional amount towards thepayoff of the property being
(22:16):
carved out to, as they say,Rebalance the portfolio.
So like I recall in someportfolio loan options that we
have, they'll say, okay, you gotthe, you owe a hundred thousand
dollars on that property thatyou're, you're carving out fine.
And you've got to pay the ahundred thousand plus, you've
(22:37):
got to pay an extra 20 percentof, you know, carve out fee to
rebalance the portfolio.
That's not a fee.
You're just paying down thebalance, an extra 20 percent of
that a hundred thousand.
So it's not like a fee.
They're just going to make youpay a little bit extra off.
Now, and other big challengesthat note that blanket loans are
(22:57):
limited by state.
In other words, each state isgoing to have different
regulations on how they treat ablanket loan.
So if, for example, you haveproperties in three different
states that you're trying to puttogether into a blanket loan.
You're going to have, you're,you're going to need to get
three different blanket loans,assuming that's what would end
(23:20):
up happening, that you'd haveenough property for each loan.
That would be a blanket loan,but it isn't you, whichever, if
it's a blanket loan or not ablanket loan, you would need
three separate loans.
Uh, you cannot have propertiesfrom different States on the
same blanket loan.
And as I touched on a little bitearlier as well, the properties,
(23:41):
if it's a purchase, Theproperties need to be purchased
from the same seller.
And again, this has to do withthe laws to be able to legally
close the file, right?
At that closing, they're goingto issue the payment to the
owner of the properties, right?
And it can only be, you know,one entity.
(24:03):
Or multiple owners and it'smultiple owners of those
properties, but you cannot have,but they have to be the owners
of the same properties, right?
So by properties up to have allthe same owner, you cannot have
two different owners unrelatedwith multiple different
properties in the same portfolioloan closing, because the law
(24:23):
would not allow you to make thatdistribution to, you know, to
different entities withdifferent properties on that
same closing.
So that, that would be a big nogo.
Okay.
One other, uh, another challengeof the blanket loan is that keep
(24:44):
in mind that all of theproperties serve as collateral
for each other.
So an issue with one propertycould jeopardize the whole
portfolio.
So like if one property ends upgetting, um, a code violation
lien or something like that.
And that has to be satisfied.
That code violation lien goesagainst the portfolio and in
(25:07):
essence could encumber everyproperty in the portfolio,
right?
So keep in mind this is a jointeffort here.
And last bullet point here tocover regarding challenges of
the blanket loan is that youknow, similar to what I just
mentioned about, you know, oneproperty could damage the
(25:28):
portfolio if one of theproperties, if you're just
trying to close on the loan, andone of the properties has a
clouded title, then you can'tclose on the other ones as well.
So in essence, the only way toclose on that loan would be to
remove That one property fromthe portfolio purchase, right?
(25:49):
And then that may mess up thewhole transaction because the
seller may say, wait a minute,the whole deal was, I'm selling
you all, you know, all 10 of myproperties.
I don't want to sell you nine ofthe properties and have to keep
and try to sell one of theproperties individually because
it's going to be tough becausethat's only a 60 or 70, 000
property and they know howdifficult it is.
For those lower valuedproperties to sell.
(26:11):
So keep those challenges inmind.
All the properties gotta passinspection of every time to be
able to close on the portfolioloan.
So, like I mentioned, definitelylook towards blanket loan as one
of the good niches, try tospecialize in as a loan
originator.
And I can guarantee you're goingto get a steady stream of
(26:34):
business of underservedborrowers are going to be more
than happy to meet to meet youand be a very captive audience.
All right.
Thank you, Jose.
Okay.
So, let's look at some questionshere.
So, I, we have a question here.
Is this non QM?
(26:55):
So, no PMI.
Will you ever remember anythingthat's non qualifying, right,
and is going to be non QM?
So, Jose, you want to touch on?
Yeah, I mean, all of these, forblanket loans are non QM loans.
There is nothing conformingabout them.
So, yeah, definitely never anyPMI applicable.
Even though the maximum LTV forthe blanket loan is 80%.
(27:17):
So you really wouldn't have PMIapplicable due to LTV, but never
any PMI applicable on any non QMloans, regarding non warrantable
condos being financed.
Yeah.
I mean, there's going to be aquestionnaire just like with
every other loan.
Right.
And then, uh, depending on theloan to value, they're going to,
it's going to make be thedetermination if it's going to
be a full review condo loan or alimited review condo loan, which
(27:43):
is usually what you're going toneed.
If you have a non warrantablecondo because usually what's
going to make a non warrantableis going to be no reserves Um
high percentage of uh renters toowner occupants, for example
More than one entity could own acertain percentage of the units.
Those are usually the ones thator litigation But litigation
(28:04):
doesn't get resolved by limitedreview though All right.
I think the other questions werePretty much already answered
there after they were asked.
So I think we can go ahead andwrap it up then.
Great training here today.
Uh, remember that we do this at7 p.
m.
Eastern time every Tuesday,Wednesday, and Thursday evening,
(28:25):
where we go through a new loanofficer training topic.
So we will see you next week forthe next episode of the loan
officer training series with themortgage
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.