National Family Mortgage Facilitates Home Loans between Family Members
National Family Mortgage is one of two companies that are working to revive a peer-to-peer lending business model first explored by Virgin Money USA. Rather than serving as a marketplace for strangers to lend money with one another, as Prosper.com and Lending Club do, National Family Mortgage and a similar company, LendFriend, are developing businesses that facilitate loans between individuals that have existing relationships.
National Family Mortgages
National Family aims to formalize mortgage loan agreements between friends and family members. When a young family wants to buy a home, they are often unable to borrow money or aren’t terribly excited about paying the interest rates that a bank wants to charge on a mortgage. In some cases, the family doesn’t buy a home, but in others, a benefactor, often a family member, steps in and provides a mortgage loan for the family. These arrangements often result in the loss of a relationship between family members because the borrower doesn’t repay or the loan terms weren’t clearly laid out from the beginning. As a result, National Family has developed a process to setup a legal mortgage loan agreement between two individuals.
Of course, a young family that can’t get financing isn’t the only situation where using a mortgage setup by National Family would make sense. The service offered by National Family Mortgage could also be setup with homebuyers and sellers that would like to setup an owner financing arrangement. National Family also offers “Gift Mortgages” in which one individual gifts another a fraction of ownership of a home each year to avoid gift tax.
National Family’s Mortgage Service
For $599, National Family Mortgage will setup a legally-binding promissory note and register the mortgage with the appropriate regulatory authorities. The company will also provide a legal property description and provide an amortized repayment schedule.
Optionally, the company will manage the loan servicing process. National Family Mortgage charges a monthly servicing fee of the greater of .075% of the unpaid principal balance divided by 12 or $15 for loans over $600,000. The company also charges a $25.00 fee if the two parties involved in the mortgage wish to amend or change the terms of their loan. For this monthly fee, the company will send out payment reminder and statements, process electronic payments, setup escrow for property taxes and insurance and take care of all necessary IRS 1098 & INT-1099 Reporting.
$7,407,160 in loans has been facilitated by National Family since its service launched in November 2010. The largest single loan was a $1,168,000 first mortgage on a home. The average interest rate that borrowers are paying is 3.99% with no points on an average loan term of 24 years.
How the Process Works
National Family has a loan setup process very similar to that of LendFriend, with the exception that National Family only sets up mortgage loans. Once a borrower and a lender decide they want to setup a loan, they visit National Family’s website and setup the mortgage. The parties enter the loan terms online and pay the $599 setup fee. Within a week, National Family Mortgage will mail the appropriate loan documentation to the two parties involved.
The borrower and lender are instructed to review the documentation, execute the agreement by way of public notary and return the documentation to National Family Mortgage. The company will then take the documentation and submit to all necessary and appropriate regulatory authorities. The loan servicing program will also get triggered at this point if the parties involve opt for the service.
Is it a Good Idea?
The real question isn’t whether or not having National Family Mortgage facilitate a loan between family members is a good idea. The real question is whether or not friends and family members should be making loans with one another to begin with. Often these loans are made because a borrower isn’t credit worthy and is unlikely to repay on the loan. If this is the case, one family member will end up defaulting on the other, resulting in a very strained relationship. It’s probably best to avoid loaning money to friends and family if their credit is less than stellar. If the lender goes in knowing that they acting much more a as a charity than as an investor, these situations can be much less straining on relationships.
There are a couple of scenarios where getting a mortgage setup with National Family is very prudent. If a family wants to setup a forgiveness loan (also known as a gift mortgage), a loan through National Family will make sure that all appropriate legal requirements are met. Having appropriate documentation in place could side-step major potential headaches from the IRS.
The other scenario where a National Family mortgage is truly a “win-win” situation is that of owner financing. When a home-seller is willing and interested in providing financing on their home to a buyer, it’s important that that the loan is formalized and complies with all necessary legal requirements. These loans often aren’t setup well, leaving the seller in a bad financial situation. A loan setup by National Family will go a long way to make sure that a home seller is protected.