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Virgin On The Ridiculous
Posted by Marlow Harris under Money & Finance, Real Estate
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We used to call it “mattress money”. Money not in banks and not accounted for in usual ways, used to fund home purchases, usually by ethnic groups not likely to trust banks or safety deposit boxes.
Now Richard Branson of Virgin Air fame has tried to legitimize this practice with his new company Virgin Money.
Their website offers “real estate loans” but is really only a servicing company for borrowers who have already arranged to borrow money from friends or relatives. Virgin Money makes their dough by servicing the loans.
“Full Closing with Escrow” includes escrow services in addition to a full closing. They formalize the loan, ensures that taxes and insurance are kept current, and transfers ownership to the buyer with an official closing in a flat fee of $2299 + $19 a month for each month one has the loan. Apparently, you go to them with the amount borrowed, the interest rate you’re paying and other terms of the loan already negotiated and they just handle the paperwork.
As you know, transactions between family and friends are increasingly being structured as private mortgages. In these situations, friends, family and home sellers act as a bank and finance part, or all, of the purchase.
Virgin Money provides proper loan documentation and professional repayment management that protects the emotional and financial interests of all parties involved, while still keeping wealth in the family. And, we handle the fun stuff like accounting, year-end reporting, and tracking down late or missing payments. Well, we think it’s fun.
In our MLS Purchase and Sale Agreements, we have a clause where the Buyer certifies that they are not relying on any contingent source of funds. When making one’s offer contingent upon a home loan, it’s usually not contingent on one from Aunt Sarah, but from a recognized commercial lender. Exactly how does one prove one is getting this loan? I suppose if they fund this private loan ahead of time and show proof of actual funds, that might fly. But I don’t want to be the first agent to try this….
And Virgin is a huge well-funded company, why would they dabble with these small potatoes? They’d have to have 100′s of new clients a month to compensate them for the trouble and liability.
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[...] For example, I would strongly advise Aunt Sarah to request a verification of employment the day of closing? Also, she should make sure that any appraisal is conducted by an appraiser in good standing (and not buddies with your borrower). Finally, I would also make sure that Suzie’s son Johnny forward three months of banks statements to ensure that he has enough cash to sustain him through three moths of financial difficulty. And all of these details are really only from the underwriting perspective without even considering the realty perspective. [...]
That is a puzzler for sure. But then again, Richard isn’t known for being conventional by any stretch. Perhaps he is just more far seeing than the rest of us? Maybe it will be the next big thing or its some kind of pet project for him. It’s not like he needs the money.
With all that money he has, it is difficult to understand why he would want to enter this market. It simply can’t be that big of a market??? Maybe he sees this as a wave of the future because banks will tighten so much that people will have to borrow from some other source.