a first mortgage without violating the policy of the lender prohibiting secondary financing on the property. The buyer simply induced the seller to carry back the difference on a note secured against other properties. By moving the mortgage off the subject property, the buyer prepared the way for a future refinance or dare to raise capital for the next big deal.

Technique No. 37 Creative Refinance of Underlying Mortgage

In general the only flexible holders of underlying mortgages are private parties. Hard-money mortgages are for the most part not cooperative when it comes to techniques discussed in this section. However, there is one aspect of underlying financing where even the hard-money people are beginning to show flexibility: refinancing. The unprecedented flight of interest rates in recent years has left financial institutions holding large portfolios of undesirable low-interest mortgages. With the advent of high yield money market funds, deposits in savings and loan associations have been withdrawn in record amounts, making the situation even worse. The result is that the lenders are desperate to rid their holdings of the older, low interest loans made yesteryear. A symptom of the malaise is the aggressiveness of many banks in upholding the due-on-sale provisions of conventional loans made during the last decade, they want those loans paid off or assumed at higher interest rates.

The current situation will bring about a softening of hard-money hearts in the interests of institutional solvency. One major example of this has already become policy. The Federal National Mortgage Association, which holds a vast portfolio of home mortgages acquired from lenders around the country is offering to refinance their own mortgages at rates below the market for both owner-occupied as well as investment situations. Since they will go as high as 90% for owner-occupants and 80% for investors, the program offers interesting possibilities for the creative buyer. FNMA calculates the new interest rate on the refinanced loan by averaging the yield on the old amount with the yield on the added amount according to an internal formula. The combination is always lower than the market rate. Although FNMA guidelines must be met, buyers should consider taking advantage of the opportunities the refinance program offers to raise funds.

The Fannie Mae program is not the only “creative refinance” opportunity available. Many primary lending institutions around the country are devising innovative ways to divest themselves of unprofitable low-interest loans in ways that might be beneficial to