Are You Ignoring One of Your Clients’ Most Important Needs?

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As a wealth manager, you’re well aware that the number of high net worth individuals is on the rise in the United States. And you also know the needs and demands of your clients are ever more complex, especially in the wake of the pandemic.

Chief among those needs may be private client lending. The rise in luxury real estate purchases during the pandemic has been nothing short of extraordinary. The resilience in real estate markets and the surge in the high-end segment is fueling increasing demand for alternative NonQM lending at a time when traditional options have never been more restrictive.

That’s because financing luxury real estate purchases is fraught with obstacles for high net worth and mass affluent buyers. A retrenching of the secondary mortgage market in the early days of the pandemic as well as rising defaults has put enormous pressure on lenders, especially in the jumbo market. The result is fewer lenders and those that are still operating have instituted stricter qualifications. Now, new rules from Fannie Mae and Freddie Mac are putting even more pressure on conventional mortgages for second home purchases. (See Making Sense of the Second Home Market.) The result is fewer high net worth individuals being able to qualify for the conventional lending they need to make the purchases and refinances they want. Your clients need expert advice from you to handle this dilemma.

There is a Solution. Non-Agency Private Client lending offers financing opportunities for your asset rich clients looking to purchase, harness equity or invest in property without the restrictions of conventional mortgages. “Explosive growth and unrelenting demand in the Jumbo mortgage market highlights exactly how big the pent-up demand is in the Private Client community,” says John Lynch, Founder and CEO of PCMA.

A Bit of History Non-bank private client lenders such as PCMA have long understood that high net worth borrowers are often shut out of traditional credit markets. The reason boils down to unintended consequences of Dodd-Frank regulation. Business owners, asset-rich retirees, and other high net worth individuals have been unfairly punished by well-meaning but misguided regulations that came out of the 2008 banking crisis. The result is an unprecedented credit gap for these borrowers, who have more than enough assets and means to finance their homes, residential real estate investments or cash out refis, but don’t necessarily meet the strict income regulations for a qualified mortgage.

This credit gap has affected the entire high- -end real estate market. Owners caught in the credit gap who can’t buy new properties with conventional borrowing may become distrustful of the process and maintain a heavy bias towards cash offers. That means a huge tranche of all cash transaction is eliminating mortgage carrying homebuyer offers, exacerbating the already epidemic inventory shortages, explains Lynch. An estimated $1 trillion worth of property is currently inaccessible to the vast majority of homebuyers, he adds.

Flexible Options Designed for Your Clients

For your asset-rich clients in need of more flexibility than traditional lenders can provide here are some of the non-agency private client lending options that may provide the solution.

INTEREST-ONLY MORTGAGE: This specialized mortgage solution allows your clients to reduce debt service, free up funds for other investment opportunities, gain greater control over monthly expenses and manage irregular income streams.

SECURITIES BASED BORROWING: Pledging qualified securities in lieu of cash for the purchase of real estate gives your client buying power and efficient cost of capital, without capital gain exposure or disruption to your client’s overall investment strategy.

DELAYED FINANCING: Delayed financing allows clients the option of a cash-out refinance immediately after the purchase of a property. This gives real estate investors increased leverage for negotiation, while still being able to finance the mortgage over time.

MORTGAGE PRE-APPROVAL PROGRAM PCMA: Streamlines the mortgage approval process, allowing your clients to gain certainty in buying power and price point prior to selecting a home for purchase. With our asset-based qualification approach, property value and location often take priority over clients’ cash flow, credit rating or current financial situation.

Clients can save time by narrowing their search for the perfect property and increasing their competitive advantage when bidding against other potential buyers or investors. All of this is provided in an atmosphere of competitive rates and flexible terms. Many private lending rates compete with jumbos from money center banks, especially in the current environment. When rates are slightly higher, non-agency clients often find flexible terms, including 40-year or interest only 10- year loans, easily make up for the increase. “We hold true to our missions to build experiences tailor-made to meet the needs of wealth management clients, while keeping rates as close to prime as possible,” Lynch says.