Second liens, first priority

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‘If you only have one product, then you’re more than likely missing the boat on the total opportunity’

For mortgage professionals searching for opportunity in a tighter lending environment, Tom Davis, chief sales officer at Deephaven Mortgage, has a straightforward message. “I’m a big believer that there’s opportunity in every market,” he tells MPA. As the mortgage industry contracts from a $4.4 trillion high to between $1.8 and $2 trillion today, Davis sees room for growth – particularly in home equity lending – and notes that the current economic backdrop has left many homeowners “stuck” with ultra-low interest rates. “Close to 80 percent have mortgage rates under six percent,” Davis says. “It doesn’t make economic sense for them to cash out.” This creates a compelling case for second lien products like HELOCs and HELOANs. Rather than refinancing and giving up a historically low rate, borrowers are increasingly tapping into their home equity to fund renovations or consolidate high-interest debt.

Deephaven Mortgage, founded in 2012, is a pioneer and leader in non-QM loans. The lender’s longevity and strength in the non-QM space has made homeownership possible for a significant number of borrowers who would not have had access to it under traditional requirements. Deephaven offers a wide array of non-QM loan products that include a true LLC business-purpose lending option. The company’s non-QM portfolio includes a DSCR cash-flow loan, an expanded-prime mortgage, an equity advantage second mortgage, an equity advantage HELOC, and non-prime solutions for borrowers who miss traditional agency qualifications. As an expert and educator in the non-QM sector, Deephaven offers extensive training to all of its mortgage partners.

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“Lenders should be contacting their borrowers, checking in on them, seeing how things are, and assessing their financial needs”

Tom Davis, Deephaven Mortgage

“Auto loan debt is at $1.1 trillion. Credit card outstandings are about $1.6 trillion,” Davis says. “They’re going to use that equity to consolidate their debt, to improve cash flows, and to do home renovations. Because the majority of the homes in the United States are around 40 to 50 years old, people are looking to renovate. In fact, more than 50 percent of second lien originations are actually renovation loans.” It’s not just homeowners driving demand. Investors – many of whom locked in low rates on rental properties – are also seeking access to equity without disturbing their favourable first mortgage terms. “There’s over 19 million investment properties in the United States that account for $49.5 million,” Davis says. “The last thing the investor wants to do is worsen that cash flow … so there’s opportunities for investors to take out second liens.”

Lenders urged to check in with their customers

Published May 5, 2025

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“If you’re an originator today, every loan counts. It’s a very challenging market, and originators should have all the products available – not just agency”

Tom Davis, Deephaven Mortgage

This aligns with recent trends, with Davis pointing out that last year one out of every four transactions was an investment property. By tapping second lien products, investors can free up capital to expand their portfolios – an avenue that lenders can’t afford to overlook. “Lenders should be contacting their borrowers, checking in on them, seeing how things are, and assessing their financial needs,” Davis says. “Make them aware of these products and how to leverage them to improve cash flow

and renovate their homes. Tap into that pipeline of originators you’ve spoken to over the last 10 years – because those are all amazing leads. I would start there – you don't even need to spend money on marketing because you already have those contacts.” Despite the high number of potential clients, one stumbling block that continues to hamper would-be homeowners is the verification of traditional income – especially for self-employed applicants, gig workers, or those with alternative income streams. At Deephaven, they’ve already responded to this market need by developing a range of options. “One size doesn’t fit all,” says Davis. “We have a HELOC that will go up to $400,000. Deephaven also offers a closed-end second mortgage that allows for alternative documentation, including bank statements or profit and loss statements – tools tailored for self-employed borrowers. There’s over 19 million self-employed people that account for over 30 million businesses – and probably 50-plus million gig economy kind of workers.”

Deephaven also recently rolled out a DSCR second lien product for investors as well – covering all angles and wants in the current market. “Those products address all property types,” says Davis, “whether it’s a primary, it’s a second home, or an investor – it’s important, as an originator today, to have a full suite of second lien programs. Every borrower is a little bit different. If you only have one product, then you’re more than likely missing the boat on the total opportunity.” As far as strategies go, lenders and originators should be looking to market themselves in various ways to generate more business in the space for second liens – beginning with their existing customer base. According to Davis, there’s an entire population of borrowers from the last 10 years that are available – and these clients already trust their lenders. Many are equity-rich, making them prime candidates for second lien solutions.

‘A contractor or a builder, a roofer, a plumber, a handyman … that’s a great partner’

To make the most of these contacts, reaching out by phone is a simple yet powerful tactic. And it’s not just about volume – it’s about quality and personal outreach. “You can buy leads as well,” Davis says. “There’s borrowers that are going to websites and applying, and you can buy leads from certain lead outlets. Originators seeing real traction in the second lien space are actually being proactive and buying leads.” Another often underutilized channel is the renovation community. Here, Davis urges originators to work with contractors and handyman. These professionals are in constant contact with homeowners looking to update older homes, but many clients lack upfront funds. “A contractor or a builder, a roofer, a plumber, a handyman … that’s a great partner,” he says. “We can potentially consolidate their debt, do a renovation, and put them in a better financial position.”

And in today’s digital age, social media is no longer optional as a marketing tool – it’s where conversations happen. Davis recommends that professionals leverage the online world to tap into a “switched on” generation of clients. “I see a lot of our originators are actually promoting these types of products on social media,” he says, “whether it’s Facebook or even TikTok. Another option is joining REIAs or local investor meetups. These investors are renovating properties … that’s another place to meet.” Essentially, Davis’s message for professionals looking to make a success of 2025 is: don’t wait around, seize those opportunities. “If you're an originator today, every loan counts,” he says. “It's a very challenging market, and originators should

have all the products available – not just agency. There are agency borrowers and non-agency borrowers in every town, and you do have borrowers that have a need for these products.”

‘They’re going to miss the opportunity’

Too often, originators shy away from second lien or non-agency options because they perceive the average loan balance to be too low to bother. Davis pushes back, noting, “Sometimes, people think they don’t want to do them because the average loan balance is not too high – but we’re seeing the opposite. We're seeing average loan balances north of $200,000.” And to succeed in this space, Davis stresses two things: planning and training. “Put a strategic plan in place,” he advises. “If they don’t have a plan or they’re not thinking about this, I think it’s good to work with an investor who has the expertise, who has best practices, who have training available for their staff. “Originators are sometimes not comfortable originating these type of products … so I think a key thing is originators should be trained on the product and become comfortable. And if they do, then they’ll be comfortable selling it.” The bottom line? A proactive plan and strong partner support can make all the difference. “If the loan officer doesn’t dedicate time into learning their products … they’re going to miss the opportunity,” says Davis.

Gig workers struggle with downpayments

68%

12%

77.2%

of gig workers earn less than $500 per month

report an additional income of over $1,000 per month

are somewhat or highly dependent on earned income

Source: Dollar Sprout

of American homeowners plan on renovating this year

Source: Leading Indicator of Remodeling Activity (LIRA)

plan to renovate their kitchen

plan on a renovation budget of $80,000

Homeowners boost house prices through renovations

52%

10%

29%

27%

plan to renovate their bathroom

Homeowners spent $463 billion on renovations in the first quarter of 2024