Blanket Mortgage – Definition

Cite this article as:"Blanket Mortgage – Definition," in The Business Professor, updated January 24, 2020, last accessed November 26, 2020, https://thebusinessprofessor.com/lesson/blanket-mortgage-definition/.

Back toBANKING, LENDING, & CREDIT INDUSTRY

Blanket Mortgage Definition

The blanket mortgage refers to a mortgage that covers either two real estate pieces or more of them. As collateral for the mortgage, the real estate is held, but the real estate’s individual pieces might be sold off without needing to retire the whole mortgage.

A Little More on What is a Blanket Mortgage

This is another option to a developer taking out multiple individual properties in a big property purchase which they plan on selling in various parts. Usually, a blanket mortgage is used to cater for the cost of land purchase and development which developers intend on subdividing into individual parts.

Various Ways of Using Blanket Mortgages

For property investors who are in possession of numerous properties, the blanket mortgage might be a refinancing option that will enable them have more physical cash. An aggregate blanket mortgage may capitalize on more favorable interest rates or negotiate better terms as against negotiating pay separate from loans. This can release more capital provided it decreases the monthly payment size, which in return could provide them additional resources to buy more property.

A property owner, by making use of the blanket mortgage, can cut different costs related to applying for, as well as, closing on numerous mortgages. Also, the owner of the property will only have to pay a set of fees for a blanket mortgage as against individual fees on every single property.

“House flippers” may seek a blanket mortgage as a form of quick action and capitalizing on opportunities seen in the market. Supposing house flipper spots various properties they intend acquiring, refurbishing, and putting back on the market, then a blanket mortgage can offer more flexibility to ensure such actions are better realized. This mortgage’s clauses might make it possible to have an individual resale of the properties as new buyers approach. Depending on the blanket mortgage terms, refinancing the loan when different properties are sold may either be necessary or not.

Businesses that have many locations they intend owning and operating out of may seek blanket mortgages. This can apply to real estate developers who’re investing in either residential or commercial property, like multifamily homes or apartment buildings. Blanket mortgages pose the possibility of risk to the property owner. Supposing the owner fails to make payment for a single property, this can spur a situation allowing lenders to seek control of the whole set of properties that the mortgage covers.

Reference for “Blanket Mortgage”

https://en.wikipedia.org/wiki/Blanket_loan

https://www.investopedia.com › Personal Finance › Mortgages

https://www.bankrate.com/glossary/b/blanket-mortgage/

https://fitsmallbusiness.com/blanket-mortgages/

https://www.thebalancesmb.com › Industries › Real Estate › Basics

Academics research on “Blanket Mortgage”

Financing the Condominium in New York: The Conventional Mortgage, Wisner, D. J. (1967). Financing the Condominium in New York: The Conventional Mortgage. Alb. L. Rev.31, 32.

Mortgage Prepayment Clauses: An Economic and Legal Analysis, Whitman, D. A. (1992). Mortgage Prepayment Clauses: An Economic and Legal Analysis. UCLA L. Rev.40, 851.

The value of recourse and cross-default clauses in commercial mortgage contracting, Childs, P. D., Ott, S. H., & Riddiough, T. J. (1996). The value of recourse and cross-default clauses in commercial mortgage contracting. Journal of Banking & Finance20(3), 511-536. The traditional commercial mortgage contract is written without recourse to any other borrower assets except the subject property. For credit enhancement purposes, many lenders/ investors are today seeking access to additional collateral through recourse or cross-default clauses. This paper considers the contracting value of such clauses. To measure these values and assess other related risk statistics, we apply a contingent-claims approach in which borrowers rationally default when the value of the mortgage meets or exceeds the value of the collateral, where collateral value includes additional assets provided through the mortgage contract. In the case of recourse to an unencumbered asset, default risk is reduced in part simply because additional collateral is available. In addition, when the subject property and additional collateral are less than perfectly correlated, diversification benefits are apparent. In the case of the cross-default clause — which means that default on one loan constitutes default on all loans covered by the clause — risk management benefits are also found to be substantial. For example, default risk resulting from a two-asset cross-default clause arrangement can be reduced by over 50 percent of non-recourse default risk when asset values are uncorrelated.

Commercial mortgage-backed securities: An investor’s primer, Hartzell, D. J., Lepcio, A., Fernald, J. D., & Jordan, S. (1987). Commercial mortgage-backed securities: An investor’s primer. Housing Fin. Rev.6, 169.

Across Sales on Horseback, Llewellyn, K. N. (1938). Across Sales on Horseback. Harv. L. Rev.52, 725.

Was this article helpful?