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From the Appraiser's Perspective: Appraisal fees all over the board

National Mortgage Professional
Apr 26, 2007

An emerging niche opportunity for mortgage brokersMariano ClaudioHispanic market, residential mortgage, refinancing, commercial real estate Marketing commercial mortgages to Hispanic entrepreneurs Much has been written in recent issues of The Mortgage Press about the immense potential for residential mortgage brokers to expand their customer base by reaching out to Hispanics - a market that is growing exponentially in both size and buying power. The article I wrote for the January 2007 issue ["One size does not fit all: Understanding the distinctions of the Hispanic market"] reported on a comprehensive study of Hispanics in America that found by the end of the decade, Hispanics will account for nearly 14 million households and their spending power will reach more than $670 million. Unfortunately, across that board, residential mortgage originations and refinancing continue to weaken. However, the Federal Reserve Board is reporting continued strong activity from the commercial real estate markets. For mortgage brokers looking for new opportunities in the face of changing market conditions, marketing to Hispanic entrepreneurs holds considerable promise. One in 10 small businesses today is Hispanic-owned, up 82 percent since 1997, making them among the fastest-growing business segments in the nation. By 2010, there will be an estimated 3.2 million Hispanic firms generating $465 billion, according to U.S. Hispanic Chamber of Commerce and the Small Business Administration. More than other entrepreneurs, Hispanics and other minorities often lack the access to funds and sophisticated business advice needed to make their start-up businesses successful, according to "Entrepreneurship in the U.S.: The 2004 Assessment," by Paul D. Reynolds of Florida International University. This single largest study to date measuring entrepreneurial activity in the United States gathered details on entrepreneur demographics such as ethnicity and education. It found that while Hispanics are more likely than whites to be involved in a start-up effort, they are less likely to end up with a new firm. With this in mind, mortgage brokers should look for commercial lending products that address the challenges that Hispanic entrepreneurs often face. One option is an alt-A small-balance commercial mortgage that can help Hispanic (and other) entrepreneurs start and operate small businesses by providing the financing to purchase office or warehouse space, or the equity to grow by utilizing the cash equity in an existing property. Meeting the challenge of access to funds Typically, the circumstances under which banks will write commercial loans are very narrow, often requiring full documentation, as well as hefty credit and borrower liquidity. As a result, banks turn down a significant number of requests for commercial loans. The alt-A small balance commercial mortgage can help lenders meet the needs of Hispanic and other minority entrepreneurs. Meeting the challenge of sophisticated business advice Another reason alt-A commercial mortgages are well-suited to Hispanic entrepreneurs is because they are less complicated to understand, with many of the familiar features of traditional residential mortgage loans. Options include stated-income with verified assets, loan-to-value ratios up to 90 percent, fixed- and adjustable-rate programs, and 25-year and 30-year fully amortized payments with no balloons. Reduced documentation requirements based on credit scores and collateral is another feature resulting in less paperwork than what full-service banks normally require for a commercial mortgage. The following scenario illustrates one example in which an alt-A small balance commercial loan makes sense for the Hispanic entrepreneur when compared to traditional loans. The borrower has been in his business or occupation for several years when there is a change in income due to a recent event or timing. An alt-A small-balance commercial loan gives this borrower the option to state reasonable income without needing to submit tax returns and business income statements. Few countries in the world can match the United States' entrepreneurial level of activity, with more than 20 million Americans starting a business or managing a new one, reported the "Entrepreneurship in the U.S.: The 2004 Assessment" study. Millions of Hispanics are already realizing the American dream of homeownership. An alt-A commercial mortgage can help them grow their entrepreneurial spirit as well. Mariano Claudio is executive vice president of emerging markets for Pinnacle Financial Corporation, an independently owned direct mortgage and wholesale lending unit of The Pinnacle Companies, a family of companies that also includes wholesale commercial mortgage lender Pinnacle Commercial Mortgage. He can be reached at (703) 738-9380 or e-mail mclaudio@pinnaclefinancial.com.
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