Massachusetts based National Family Mortgage provides borrowers with the lowest mortgage loan rates available in the US. AltFi News caught up with them to find out just how they do it.
As AltFi continues its quest to showcase a global range of alternative finance platforms, we are discovering many new and innovative lending companies. One such platform, which launched in 2010, is National Family Mortgage.
The company is a niche peer-to-peer lending service that helps protect families who are borrowing from, or lending or gifting money to relatives in order to purchase, refinance, or renovate a home. Their clients directly invest in and borrow from their own family, avoiding costs and the implications of a broken mortgage system.
Since inception, National Family Mortgage has facilitated over $208,000,000 in secured mortgage loans between relatives, whilst keeping over $95,000,000 of interest within families. AltFi News spoke to National Family Mortgage CEO Timothy Burke, who kindly provided us with a detailed insight into the company.
Could you introduce us to the platform please?
Real estate loans and financial gifts with relatives can be a win-win for both sides, but should be documented and managed properly. National Family Mortgage helps minimize the legal and federal tax consequences that can occur when family real estate loans and financial gifts are documented improperly – or not documented at all.
We take the simple, often overlooked steps that make sense when you’re doing a loan with a relative. Our platform empowers clients to:
(1) Structure their own mortgage loan.
(2) Document their own mortgage loan.
(3) Register their mortgage loan with the proper government authority,
(4) Manage the loan to protect relationships and prevent tax problems:
(4A) Payment reminders and monthly statements
(4B) Collect and credit payments
(4C) Online account access
(4D) Toll-free support
(4E) Year-end tax statements
What does it cost?
For a one-time fee of $725, National Family Mortgage generates the financing documents for your family mortgage transaction and will also register your mortgage with the proper government authorities.
The monthly servicing for family mortgage loans up to $500k is $15 per month. The monthly servicing fee for loans over $500K - $1M is the greater of .075% of the unpaid principal balance divided by 12 (months) or $15. Loans over $1M add $15 per million. An additional, optional, Escrow/Impound service for property taxes and insurance is available for $15 per month and will be added to the standard $15 monthly loan servicing fee (i.e., $30 per month total).
How does the lending process work? Is there an auction process - or fixed interest rates?
National Family Mortgage clients essentially structure their own loan terms. We require a minimum interest rate must be met, as required under the US tax code, with a maximum rate of 6.00%. The minimum required interest rate on a July 2014 loan with a repayment schedule of over 9 years, is 3.02%. In June 2014 we closed over $15,000,000 in loan volume with average terms of 3.27% fixed, for 21 years.
In general, our Lenders are looking for a low-risk risk, secured investment vehicle with better returns than CDs, bonds, or annuities. In turn, our Borrowers usually receive a loan at lower rate than offered by most banks, while saving thousands of dollars in loan origination fees. The loan application process is easy, and even better; the borrower’s interest payments are kept within the family.
What is unique about the platform?
In the US, most so-called “peer-to-peer” lending companies really are not p2p at all. These platforms are online marketplaces where loans are generally funded by insurance companies, pension funds, hedge funds, wealthy accredited investors, and even banks. The US press has finally caught on to this fact and momentum is building to rebrand the space as “marketplace lending” over “peer-to-peer lending”.
Borrowing and lending money with relatives is clearly the original form of crowdfunding and peer-to-peer lending. National Family Mortgage has always considered itself to be a true peer-to-peer lending platform. Our documentation product is a flat fee, regardless of the size of the loan; our largest loan to date is $1,600,000.00 and our smallest loan to date is $11,100.00. We truly offer borrowers the lowest mortgage loan rates and fees available in the US.
The peer-to-peer property space is rapidly emerging as one of the sector's finest - why do you think that is?
The trillion-dollar real estate market is still operating the same way as it has for decades. There is a huge opportunity to disrupt this space with more efficient and fair underwriting models that both open doors for home buyers, and real estate investors alike.
Can you comment on where you see the main differences between the UK and US p2p markets?
Data in both the UK and US clearly shows that anywhere from 1/3 to 1/5 of first time homebuyers are only able to fund their purchase with the financial help of their family. Innovative UK banks are already leveraging this trend to their advantage and offering innovative home loan products that encourage financial help from parents. US banks have been very slow to recognize the same opportunity. Hopefully, regulators in both the US and UK will continue to embrace the p2p / marketplace lending space, in all its forms, to both foster innovation and bring consumers more choices.