Real Estate Stock Loans - Pledged Asset Mortgages
Pledged Asset Mortgage, Securities Backed, Real Estate Financing, pledged asset line of credit, pledge loan, asset integrated financing, cross collateralize, stock loans, stock loan, securities financing, real estate investor, asset backed, securities based line credit
pledged asset mortgages, asset back mortgages, asset integrated mortgages, securities backed real estate, jumbo pledge View 3-minute info video
Using a securities based loan or credit line for real estate purposes has gained tremendous popularity over the past few years, especially since the recent lending crisis. It is an excellent financing alternative to a traditional mortgage and is used by many astute real estate investors and home buyers. There are a multitude of advantages to using a stock loan for real estate purposes. Here a just a few:
- No Credit Check
- No Income or Employment Documentation ("No Doc")
- The lien on the securities is not reported to credit bureaus
- The real estate is not tied to the securities financing whatsoever
- No appraisal or underwriting - because it is not tied to the real estate
- Very low rates
- Convenient line of credit with monthly interest only payments
- Opportunity to be a "cash buyer"
- No prepayment penalty
- One week close vs. 4 to 8 weeks for a typical real estate financing
(Pledged Asset Mortgage)
Simply put, a "pledged asset mortgage" is nothing more than a non-purpose securities-backed loan or credit line used to facilitate a real estate transaction. The securities asset can be used as the collateral alone, or a combination of both the securities and real property can be used. When used in combination, we call it "pledged asset combo" or "asset integrated" financing.
The reason considering a stock/securities loan for real estate purposes is important is that with the recent changes in the real estate lending environment, many otherwise excellent, even high net worth borrowers, are being turned down by traditional lenders due to lack of appropriate income documentation, high debt ratios, lower credit scores or being upside-down on loan to value. The recent mortgage crisis has caused mortgage lenders to respond by eliminating stated income and no doc products, by decreasing loan to values and by imposing stricter credit score requirements. At least for the time being, the days of mortgage stated income, no doc loans and 100% real estate financing are gone.
If you own a stock or securities portfolio, you are fortunate in that you can still get the liquidity you need (with the right guidance) by using that portfolio as collateral to obtain a low interest, institutional line of credit. Institutional securities based credit lines are non-transfer-of-title, which means that your securities remain in your ownership and in your own account at a major, top tier institution throughout the loan term. A simple lien is placed on your asset within your account during the term of the loan. Once the loan is paid in full, the lien is released from your asset. Depending on the type of securities asset you own, the loan to value will range generally from 60% up to 99%.
Today, savvy borrowers and investors are pledging their stock or other marketable securities along with or even instead of real property. This allows them to achieve the flexible real estate financing they desire today while still retaining ownership of their securities asset and keeping their long-term financial plan in tact. Many investors will eventually obtain permanent real estate financing for the property, at which time they simply pay down or pay off the line of credit and use it again for their next real estate project or other need (this type of financing is "non-purpose" and can be used for a multitude of reasons). Additionally, using the securities based credit line as the funding source gives the real estate investor the advantage of being a "cash buyer" in the market place, often resulting in attractive price reductions.
