Portfolio Lending - Xtreme X-Coll!

Hi there,

The topic of this thread is from ozperp's blog note below (thank you ozperp!):

http://www.somersoft.com/forums/blog.php?b=70

I must admit I've read a lot about this x-coll monster over the years and avoided it like the plague (only to later find out about the ''all monies clause"!), but without really understanding the implications of it (positive and negative)... but I'm now starting to see an upside to it to help me grow my property portfolio going forwards with greater leverage and economies of scale.

I'm thinking in the next 6-12 months of jumping in to bed with one lender that I seem to get along with well and is somewhat lenient with their lending criteria to me, and going the way of "portfolio lending" and "extreme cross-collaterilisation", as ozperp describes so well in her blog note above...

I have followed the general advice touted on this forum to date re. avoiding x-coll wherever possible, and it's worked so far.

However, for me to continue going forward with appropriate leverage and avoid the wrath of the LMI crowd, I'm starting to think that at some point in the not too distant future I may have to ''committ'' unconditionally to one lender... effectively becoming by main business partner.

Or alternatively, have two facilities with 2 different lenders, but each one x-colled up completely...

Has anyone else faced this juncture?

You can effectively purchase 106% of purchase price without LMI as long as your total portfolio LVR remains below a certain figure ??70-80%...

The main downside I see is if you are looking to increase your borrowings and they do a valuation on all of your properties at not an ideal time, then the portfolio LVR may not be favourable and you might get stuck...

Thanks for your thoughts...
 
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I agree JIT and have also discussed in one of my other posts today.

I have followed the same path and have been able to borrow 106% on each new purchase and the total LVR is believe it or not a bit over 80%(81.66%) and yes with no LMI. This is over a portfolio of 9 IPs and with >2.5M lend.

However to add, with each new loan i have been able to re juggle my securities so as each loan has only maximum of 2 IPs as security. So although all the properties are with lender but each loan is more or less standalone which also gives more flexibility while doing a top up or sale etc.

All this with the biggest lender in OZ.

Thanks- Daman.
 
Hi JIT

The key words here are "if possible". There is no right answer here for every situation. It all depends on the size of the next deal and how it fits with the equity you can get out of each lender / property. I don't mind paying a bit of LMI / a slightly higher IR to keep more control over my portfolio, "if possible".

We have three lenders but one has more than their fair share as a result of them having the assets with the best equity growth. Circumstances at the time pushed a recent new purchase in their direction also as they were the only bank who could stump up the cash in time!

If the deal of a lifetime came up tomorrow and to get into it we needed to x-coll the lot, then we wouldn't hesitate. It's only one of the many pros and cons for a deal. But I would make damn sure we really had no other options first... don't do it unless you really have to!
 
Hiya

There is a distinct lack of logic in this concept (cross the lot) in todays lending market.

You can either get LMI or you can not, and 80 % is 80 % is 80 %. Rarely does xcoll give your greater leverage, though not impossible.

if you are suggesting that your lender will provide more than 80 % lend on your potfolio without LMI because you are providing them with crossed securities, then it may be worth entertaining depending on how much smoke and mirrors there actually is.........

The core underlying question is.................if you are already on "special terms" with your lender, and you extend those terms further, who do you think might be on the first line of the review list when they have a general credit issue ? Or heavne forbid, you have a personal credit issue

I deal with trying to sort some of the aftermath out on a daily basis, sometimes it works out great, and the "full "xcoll has worked well for the client ( mainly where there has been some commercial or large business transaction), but often it also ends in tears.

There are no absolutes in this thing, no rigths or wrongs, but one can only make x dollars worth of equity go so far. Id recommend you do your SWOT work carefully on this thing, and make sure you either have a very very good property/mortgage lawyer, or you become one yourself.

If we go with the what the average of my clients prefer, those with portfolio values exceeding 3 to 5 mill, about 10 % of them have a passion for xcoll.............while it works for them. If you are growing fast enough, there will always come a time where the fairy tale will end, and yesterdays best friend and growth tool and has become your biggest stumbling block, and can take months to years to clean up. ( sometime its simple usually not)

Im not dumb enought to not write the xcoll loan for the client that insists, after all its usually much less work for the same money, but the work comes with the below caveat that came to me from an OLD OLD bank manager with 40 years plus service.

Remember, in general with lender loyalty, you are only as good as your last repayment.

ta
rolf

PS JIT, pls explain why, for the benefit of the discussion if you have the equity, you believe you cant get a non xcoll loan set at 80 % of your current portfolio value ?
 
I agree JIT and have also discussed in one of my other posts today.

I have followed the same path and have been able to borrow 106% on each new purchase and the total LVR is believe it or not a bit over 80%(81.66%) and yes with no LMI. This is over a portfolio of 9 IPs and with >2.5M lend.

However to add, with each new loan i have been able to re juggle my securities so as each loan has only maximum of 2 IPs as security. So although all the properties are with lender but each loan is more or less standalone which also gives more flexibility while doing a top up or sale etc.

All this with the biggest lender in OZ.

Thanks- Daman.

Great work traveller.

I like the idea of having 2 IPs crossed for each loan, rather than everything crossed with each other.

It's like giving up a little control for more leverage, but not total control so as to lose flexibility.

Do you have the all monies clause applicable to all of your loan contracts?

You're effectively x-coll with this anyway, but presumably only if you default.
 
Hi JIT

The key words here are "if possible". There is no right answer here for every situation. It all depends on the size of the next deal and how it fits with the equity you can get out of each lender / property. I don't mind paying a bit of LMI / a slightly higher IR to keep more control over my portfolio, "if possible".

We have three lenders but one has more than their fair share as a result of them having the assets with the best equity growth. Circumstances at the time pushed a recent new purchase in their direction also as they were the only bank who could stump up the cash in time!

If the deal of a lifetime came up tomorrow and to get into it we needed to x-coll the lot, then we wouldn't hesitate. It's only one of the many pros and cons for a deal. But I would make damn sure we really had no other options first... don't do it unless you really have to!

My experience in the last 12 months with LMI is that although it's there to utilise, they seem to apply much higher borrowing criteria than the banks making it almost impossible to get a higher geared loan through with LMI applied. I tried using a bank with ''open policy'', but that didn't work either.

Yes, I would only x-coll if I really had to. I'm trying to work out what is best for my situation, and I'm hoping I'll get more clarity on this with this thread. Will also be meeting with an advisor of mine to discuss this in a couple of weeks.

As a start, I would probably shift borrowings to one or two lenders, but with no x-coll and probably with all monies, unless I can get it crossed out.

And then move to partial x-coll, then x-treme x-coll... as needed.

Like climbing a gearing ladder!
 
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Hi JIT

Im confused as to why youd need to jump through LMI hoops if you are holding your overall portfolio to 80 %, which is what your post implies.

Unless the places you are buying are very country, singularly very valuable, or somehow else different, or you are uisng securitised lending, at 80 % LVR LMI doesnt apply.

Its true that LMI providers are much tougher than the lenders, but in your case, you would not need lmi coverage ?


ta
rolf
 
You can either get LMI or you can not, and 80 % is 80 % is 80 %. Rarely does xcoll give your greater leverage, though not impossible.

if you are suggesting that your lender will provide more than 80 % lend on your potfolio without LMI because you are providing them with crossed securities, then it may be worth entertaining depending on how much smoke and mirrors there actually is.........

Not sure if they'd go over 80% (that would be nice!), but what I'm suggesting is that if for example you have a total portfolio LVR of 70%... if the loans here are all with one lender, that lender is more likely to take the total LVR to 80%, and even more likely to do so if there is some degree of x-coll involved... do you agree?

In this instance if it can be done without formally crossing everything then of course that would be better, and is what I would do initially. With all monies they are effectively crossed anyway.

Whereas if you have a total portfolio LVR of 70% and this was spread across 4 different lenders, and you applied for a new loan with one of those 4 lenders or a different lender altogether... this will be harder... would it not?

How relevant is the ''total portfolio LVR" of 70% to say the 5th new lender in the picture when they have no claim to the rest of the portfolio... ?

Or do they have some claim to it in the event of a default... ?

I suppose they could force a sale on another IP to cover the default, and the lower your total portfolio LVR when you front up to them the better from their point of view.

In any case, I feel the new lender in this instance would be more conservative in their borrowings to you...

Also, as an aside, what about a situation where you do a loan top-up with one lender with the intention of taking that money to another lender to use as a deposit on another IP, and the top-up lender says you can only do this with us, otherwise you're increasing our risk by increasing your borrowings with another lender?

If you are growing fast enough, there will always come a time where the fairy tale will end, and yesterdays best friend and growth tool and has become your biggest stumbling block, and can take months to years to clean up. ( sometime its simple usually not)

...

Remember, in general with lender loyalty, you are only as good as your last repayment.

Yes, I do have that in mind.

The risks for me are if the initial total portfolio LVR limit changes eg. from 80% initially to say 65 or 75% later on.

Or if the value of the portfolio actually falls, where the lender can control when the valuations are done and if a cash injection is needed to reduce the LVR, and if sale proceeds are to go to the borrower or be used to reduce debt further.

PS JIT, pls explain why, for the benefit of the discussion if you have the equity, you believe you cant get a non xcoll loan set at 80 % of your current portfolio value ?

As per my initial comments, if the loans are across different lenders, how relevant is the total portfolio LVR (/"current portfolio value") to the new lender?
 
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Hi JIT

Im confused as to why youd need to jump through LMI hoops if you are holding your overall portfolio to 80 %, which is what your post implies.

If I was hypothetically at 80% LVR, how would I expand without getting a 20% cash deposit from somewhere... or without LMI?
 
4 loans to 4 lenders to pull equity to 80 % lvr, then take that bundle of cash to buy your new place with lender 5

A bit extreme I suppose, but juts working off your example. The buying power there is no different than taking the 4 places to one lender and getting one loan.

The CRAA and thus credit score would be better off in the crossed scenario, for sure.

If for eg a client has 20 ips and some of low value, I dont have a problem with 2 or even 3 of those being crossed ( if they are at 80 %, not if over 80 % cos it affects the LMI premium) , no point having dozens of 150 k lends !

TAE is the TLA for total aggregate exposure that will eventually get in the way with a lender if you have too much with them ( crossed or not).

ta
rolf
 
80% is 80% xcoll just seems easier to get into, much harder to get out of. I still havent been given a good example of how one lender can do things 3 or 4 lenders cant.

Some examples of the benifits of xcoll might be;

increasing the LVR over a diferent security, ie lending 80% to a commercial property/ student accom etc where usually it would only be 60%

Providing valuations for diferent property uses, ie purchase of a large family home valued as a doctors office, or multi let property etc

servicing issues, being able to perhaps use the actual repayment amount instead of the sensitised or plug rate to calculate serviceability, letting the rental reliance excuse go, or making allowances for slef managing rental properties etc etc

Im yet to see examples of the above, and when I do, this means the lender involved is not following thier own credit criteria. This leaves them open to critisism, and the lendee open to a change in policy, guidelines which may make thier life dificult down the track
The dificulites down the track, I have seen many times.
I would love to be convinced to xcoll, as rolf has said it would make a MB's life much easier, though far less creative.
 
Hiya

There is a distinct lack of logic in this concept (cross the lot) in todays lending market.

You can either get LMI or you can not, and 80 % is 80 % is 80 %. Rarely does xcoll give your greater leverage, though not impossible.

if you are suggesting that your lender will provide more than 80 % lend on your potfolio without LMI because you are providing them with crossed securities, then it may be worth entertaining depending on how much smoke and mirrors there actually is.........

The core underlying question is.................if you are already on "special terms" with your lender, and you extend those terms further, who do you think might be on the first line of the review list when they have a general credit issue ? Or heavne forbid, you have a personal credit issue

I deal with trying to sort some of the aftermath out on a daily basis, sometimes it works out great, and the "full "xcoll has worked well for the client ( mainly where there has been some commercial or large business transaction), but often it also ends in tears.

There are no absolutes in this thing, no rigths or wrongs, but one can only make x dollars worth of equity go so far. Id recommend you do your SWOT work carefully on this thing, and make sure you either have a very very good property/mortgage lawyer, or you become one yourself.

If we go with the what the average of my clients prefer, those with portfolio values exceeding 3 to 5 mill, about 10 % of them have a passion for xcoll.............while it works for them. If you are growing fast enough, there will always come a time where the fairy tale will end, and yesterdays best friend and growth tool and has become your biggest stumbling block, and can take months to years to clean up. ( sometime its simple usually not)
Im not dumb enought to not write the xcoll loan for the client that insists, after all its usually much less work for the same money, but the work comes with the below caveat that came to me from an OLD OLD bank manager with 40 years plus service.

Remember, in general with lender loyalty, you are only as good as your last repayment.

ta
rolf

PS JIT, pls explain why, for the benefit of the discussion if you have the equity, you believe you cant get a non xcoll loan set at 80 % of your current portfolio value ?


Great post Rolf.

So many people think the bank is their best friend. The rude shock often comes when it is too late.

Regards JO
 
I have a loan with westpac. I met with a westpact loan consultant and she said for my first IP it could be cross collaterised or a stand alone loan. So I was under the impression that I could apply for a stand alone loan and therefore have two properties and two loans with westpac.

Here is the confusing part, I spoke to a home loans consultant today and we spoke about cross collaterisation. He said that as long as both my loans are with westpac they are inherently cross collaterised as they have access to my assets. Is he correct?

So am I right in saying that the only way to have a non cross collaterised structure is for me to have one property with westpac and another with another lender?
 
He said that as long as both my loans are with westpac they are inherently cross collaterised as they have access to my assets. Is he correct?

They might have access to the assets, but ask what the difference would be if in the future you wanted to move one of the properties to another lender....

Cheers,

The Y-man
 
Hi there,

The topic of this thread is from ozperp's blog note below (thank you ozperp!):

http://www.somersoft.com/forums/blog.php?b=70

I must admit I've read a lot about this x-coll monster over the years and avoided it like the plague (only to later find out about the ''all monies clause"!), but without really understanding the implications of it (positive and negative)... but I'm now starting to see an upside to it to help me grow my property portfolio going forwards with greater leverage and economies of scale.

I'm thinking in the next 6-12 months of jumping in to bed with one lender that I seem to get along with well and is somewhat lenient with their lending criteria to me, and going the way of "portfolio lending" and "extreme cross-collaterilisation", as ozperp describes so well in her blog note above...

I have followed the general advice touted on this forum to date re. avoiding x-coll wherever possible, and it's worked so far.

However, for me to continue going forward with appropriate leverage and avoid the wrath of the LMI crowd, I'm starting to think that at some point in the not too distant future I may have to ''committ'' unconditionally to one lender... effectively becoming by main business partner.

Or alternatively, have two facilities with 2 different lenders, but each one x-colled up completely...

Has anyone else faced this juncture?

You can effectively purchase 106% of purchase price without LMI as long as your total portfolio LVR remains below a certain figure ??70-80%...

The main downside I see is if you are looking to increase your borrowings and they do a valuation on all of your properties at not an ideal time, then the portfolio LVR may not be favourable and you might get stuck...

Thanks for your thoughts...

You can borrow over 100% as long as the new loan on the new purchase doesn't exceed the lender's idea of what is required to avoid LMI. This means, the remainder of the funds can be from other equity (borrowed).

We have used equity in our PPoR as deposits, and borrowed the rest from another lender, or used the same lender with a separate loan. The new purchase secures the new loan. This is still your 100% lend, but is not x-coll.

The Bank will usually only do a valuation when you are requesting more borrowings for a new purchase. At least; that has been my experience.

Based on this, it is a good idea to have your overall LVR in check, and try to do another purchase when the values are rising rather than "falling".

Of course, if you have maximised every aspect of the past purchases, your properties won't have gone down in value anyway, right?. ;)

JIT, if you have faith in your ability to select a good IP, and can manage the cashflows and minimise the risks of ever having to sell, then x-coll is not really an issue.
 
So many people think the bank is their best friend. The rude shock often comes when it is too late.

Regards JO

I learned many years ago that the Banks are merely a tool to do your business with.

I have no problem giving any Bank the @rse in the blink of an eye if they act like doinks and hinder my progress.

There is no "relationship" or any of that BS - there is with the MB, but not the Bank.
 
Being technically crossed with things like all monies, and being actually crossed with having provided properties as crossed securities are a diff kettle of fish.

In the days of the securitised lenders fight agains the banks, the big sales tool for them was dont use the banks coz they have an all monies clause, Use us, coz we dont have them.

All monies only becomes an issue where you are in trouble.'

Cross coll can cause you major issues even if you are 100 % compliant with your loan agreement if you want to move along in you investing career.

I will get to some of JITs detail questions on an individual post basis, because they do deserve some focussed attention, just as a discussion point if nothing else.

ta
rolf
 
Not sure if they'd go over 80% (that would be nice!), but what I'm suggesting is that if for example you have a total portfolio LVR of 70%... if the loans here are all with one lender, that lender is more likely to take the total LVR to 80%, and even more likely to do so if there is some degree of x-coll involved... do you agree?

No, in fact the opposite is usually true. many lenders have concerns when your TAE ( Total aggregate exposure) to them goes beyond a certain limit. That varies from lender to lender, and the borrower profile.

We find that having your exposure spread in the right proportions AND at the right time will produce more consistent results than throwing it all at the one lender.

tarolf
 
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