How does a stock loan work?

By
Mortgage and Lending with Guarantee Mortgage NMLS#386911 DBO #1850

A client asked me the other day, "How does a stock loan work?" A stock loan works differently than a mortgage loan, but can serve the same purpose of financing real estate.

Instead of real estate as collateral for the loan, the stock portfolio (bonds and other marketable securities can work also) serves as the collateral. Generally speaking, the amount you can borrow depends on the quality of the portfolio.stock certificate

For example, a portfolio of highly liquid stocks, such as those listed on the S&P 500, will allow for a higher loan-to-value percentage, than a portfolio of thinly traded penny stocks. Loan-to-value percentages can be as high as 80%.

One of the most important details of how a stock loan works is that the lender will usually require that you move the portfolio of stock that you are borrowing against to their institution. You don't have to move your entire portfolio - just the portion of the portfolio you are using as collateral.

Now that you know how a stock loan works, you may be wondering why someone would get a stock loan instead of a mortgage loan. Stock loans have many benefits.

Qualifying for a stock loan is based solely on the value and quality of the portfolio. Income, credit history, and property value play no role!

Is a stock loan an alternative to a stated income loan? Yes!

Is a stock loan an alternative to the old sub-prime loans? Yes!

Is a stock loan an alternative for someone who can't refinance their mortgage because of a lack of equity? Yes!

Another benefit of how a stock loan works is speed. If you pretend that a stock loan and a mortgage loan were horses, you would bet on the stock loan winning the race 99 times out of 100! The reasons the stock loan horse wins is because there is no property appraisal and no credit underwriting of the borrower.horse race

Another benefit of a stock loan is its flexibility. There are no loan amount limits. It can be used to finance any type of real estate, so it can be used for residential and commercial loans. It can be used to finance those properties that mortgage lenders won't touch with a ten foot pole!

A huge benefit of how stock loans work is that they can be written as non-recourse. Non-recourse means that if the borrower stops making payments, the lender cannot recover other assets from the borrower if they fail to make the payments. They keep the securities, but that is it!

The payments on a stock loan are generally interest-only. An interest-only payment makes the payment lower than if it is amortized to be paid off in a certain amount of time.

Another benefit is that you are able to keep your portfolio the same. You may have been contemplating liquidating part or all of your portfolio to buy a piece of real estate. If you use a stock loan instead, you are able to continue to participate in the gains and losses, and you do not incur a capital gains tax that you may have to pay if you liquidate your stocks and/or bonds for the purchase.

Now that you know how a stock loan works, do you see any scenarios where it might work for you or your clients?

A Script For Your Clients

 

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Phil Caulfield NMLS #386911 APMC #1850 has been helping people obtain mortgages since 1985. The views, articles, postings, and information listed at this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation."
 
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Re-Blogged 1 time:

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Topic:
ActiveRain Community
Groups:
Realtors®
Mortgages
Commercial Real Estate
Commercial Real Estate Financing
Real Estate on the Peninsula
Tags:
stated income loan
jumbo loans
stock loan

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Gerry Michaels
Glasswork Media Arts - Gettysburg, PA
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Phil, this is interesting and will require more investigation on my part, thanks for the info, I love this alternative kind of stuff, thanks for sharing

Oct 05, 2010 05:04 AM #1
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Thanks Gerry - it's nice to have an "out of the box" tool

Oct 05, 2010 05:29 AM #2
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Michelle Carr-Crowe Just Call 408-252-8900 Top 1%!
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

This is a useful piece of info for those with large stock portfolios who don't want to sell just to invest.

Mar 01, 2012 08:45 AM #3
Ambassador
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Michelle Carr-Crowe Just Call 408-252-8900 Top 1%!
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

Phil, I thought this idea was worth Suggesting - good luck!

Mar 01, 2012 08:46 AM #4
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Phil Caulfield

I Get The Loans Done That The Big Banks Don't!
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