A Hard Row to Hoe: Subprime PE Money

The need for sensible subprime residential lending (hard money, call it what you may) has never been greater, but I would venture that less than $1 billion of these loans were originated last year, and maybe that's a generous estimate. I know of a few mortgage executives who have tried in vain to raise private equity money but with no luck. Plenty of PE firms like the idea in theory, but in reality they're scared of the regulators and they see no 'take out' down the road. Hence, the current hard money industry is being financed by well-heeled individuals who don't like the 1% (at best) they can make in a money market account. Hard money loans yield 10%, making it an easy decision for people with both cash to spare and strong stomachs. So, will this industry ever open up? Answer: Someday. But the first step will be the willingness of PE funds to invest, and banks to provide warehouse credit. As of today, federally insured banks wouldn't touch a subprime loan with a 10-foot pole.