Mortgage lenders knowingly and sometimes unintentionally provide home purchase and refinance loans to tax evaders, money launderers, and even straw buyers.
How? ‘Or’ What? Lenders usually face a low bar for income documentation, they don’t look too hard, and they don’t ask a lot of tough questions.
So why can’t lenders provide mortgages to legally licensed self-employed workers in the legal marijuana industry in California?
Last week, a wholesale mortgage lender in Encinitas quietly announced its âgameâ for borrowers using cannabis-related income to reduce a home loan. The only restriction is that the lender will not fund home grow or grow farm locations.
The conditions are generous, the price not so much. We’re talking about an average FICO score of 720 or better and only 10% less on a $ 2 million mortgage. A 30-year mortgage with a five-year variable rate initial foreclosure can start at just 4.6% for a primary residence. Eligibility is easy using 12 months of bank statement deposits. Or you can make 20% off for a second home or investment property with even lower rates.
Loan limits with this company go up to $ 7.5 million with a 40% larger down payment.
The marijuana industry makes a lot of money. It’s amazing to think that the people who grow, cut and sell weed can’t get a home loan using their pot deposits. What is the size of the business? Let’s explore …
According to the California Department of Tax Fee Administration, taxable sales for the second quarter of 2021 exceeded $ 1.3 billion and total state taxes are valued at more than $ 333 million.
California has 12,144 licensed cannabis companies. Los Angeles County has 1,338, Orange County 115, Riverside County 403 and San Bernardino County 212, Department of Cannabis Control spokeswoman Christina Dempsey said.
Legal cannabis cultivation ranks fifth in U.S. agriculture, ahead of cotton, according to U.S. Department of Agriculture data in a Nov. 3 article published by Leafly.com. Prices range from $ 500 to $ 3,000 per pound wholesale. (And you thought beef was expensive!)
Legal cannabis revenues in California are expected to be $ 4.92 billion for the full year of 2021, said Beau Whitney of Whitney Economics and chief economist of the National Cannabis Industry Association. He predicts that legal sales in California will reach nearly $ 9 billion in calendar year 2025.
So, will marijuana infused mortgages impact home sales?
“It won’t have a huge impact on the number of transactions in the macro market, but the hypersensitivity in local markets (where the industry has a strong presence) like Southern California could have an impact,” said Jordan Levine, chief economist at the California Association of Realtors.
Why has it taken the mortgage industry so long to offer these so-called marijuana mortgages?
It’s gray, says Michael Correia, director of government relations for the National Cannabis Industry Association.
Marijuana is listed as a Schedule I drug with respect to the federal government. But folks playing in the cannabis space refer to the February 2014 memo, also known as the Cole Memo. It largely places marijuana as a lower priority when it comes to federal law enforcement.
Financial institutions are still required to file SARS (suspicious activity) reports for any business related to marijuana, as it is still technically illegal.
âThey charge a higher administrative fee,â said Bethany Moore, deputy director of communications at the National Cannabis Industry Association. âThey are covering themselves up by filing reports on SARS. “
Will marijuana mortgages become more common, just like cryptocurrency mortgages?
We have 48 states with legalized medical or recreational marijuana laws that do not meet federal Schedule I.
âMy only guess is that it has to do with the risk,â Correia said. âAn overzealous American lawyer could always sue you. “
Whitney estimates that only 40-50% of marijuana sales in California are made through legal cannabis operators. The rest are on the illicit market.
It’s great that legal marijuana business owners finally have access to a mortgage. It is up to Congress to update federal laws to match state sentiments about marijuana use. That way, Fannie and Freddie will simply say yes to the pot – albeit at a mortgage rate much lower than 4.6%.
These legal cannabis operators should not be penalized in the form of foreclosure of the mortgage market or paying exotic mortgage rates.
Freddie Mac Rate News
The 30-year fixed rate averaged 3.09%, five basis points lower than last week. The 15-year fixed rate averaged 2.35%, two basis points lower than last week.
The Mortgage Bankers Association reported a 3.3 drop in mortgage application volume from the previous week.
Bottom line: Assuming a borrower gets the 30-year average fixed rate on a compliant loan of $ 625,000, last year’s payment was $ 104 less than this week’s payment of $ 2,665.
What I see: Locally, well-qualified borrowers can get the following fixed rate mortgages without points: a 30-year FHA at 2.375%, a 15-year conventional at 2.375%, a 30-year conventional at 2.875%, a 15 -a conventional one-year high balance ($ 625,000 to $ 822,375) at 2.5%, a 30-year conventional high balance at 2.875% and a 30-year jumbo set at 3.25%.
Note: The 30-year FHA Compliant Loan is limited to loans of $ 477,250 in the Inland Empire and $ 548,250 in Los Angeles and Orange counties.
Eye-catching loan program of the week: A fixed rate fully amortized over 15 years at 2.625% with no fees.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or [email protected] Its website is www.mortgagegrader.com.