Refinancing gears down as equity-based private lending options rev up

Refinancing gears down as private lending revs up

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In a changing lending landscape, the mortgage industry is embracing non-QM lending solutions as the refinancing bubble deflates

IT WASN'T that long ago that brokers and lenders couldn't keep up with the number of refinancing requests coming across their desks. It's no secret that highly favorable interest rates fueled the race for many to change the conditions on their mortgages. That was then, and this is now. The number of refinances has fallen off the mortgage cliff as Federal Reserve announcements have edged interest rates northward. Although a possible setback for agency-based lenders, the air deflating out of the refinancing bubble has been a further boon for the already-burgeoning private lending sector.

Acra Lending is the industry's leading private money lender specializing in non-QM programs - 3, 12 & 24 Mth Bank Statement, Investor Cash Flow / DSCR, Foreign National, ITIN, Jumbo Prime, Small Balance Multifamily, Fix & Flip, Bridge Loans, Long-Term Rental, Business Purpose and more. Licensed by the National Mortgage Licensing System (NMLS) and operating in 39 states and DC nationwide, Acra Lending offers its programs and services through four distinct verticals: Wholesale, Consumer Direct, Fix & Flip and Correspondent Lending. Throughout the mortgage industry, Acra Lending is widely known for responsible lending practices, product innovation, and operational efficiency.

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Big banks not holding all the mortgage cards

“A high percentage of the time we can find a solution for our borrowers. We have the ability to look outside of our guidelines and find solutions for very difficult situations with compensating factors where we feel comfortable with the loan”

Keith Lind, Acra Lending

While many lenders have been faced with additional COVID-19-related challenges during the pandemic, the past 18 months have been lucrative for non-QM lenders. Federal crackdowns on the borrowing criteria parameters for traditional loans, as well as the introduction of new financing rules, have also played squarely in favor of lenders in the private lending niche. “Freddie, Fannie, and the Treasury made changes to their guidelines,” says Keith Lind, executive chairman and president of Acra Lending. “They [the Treasury] said they were going to limit the number of investment properties that people can deliver to Fannie and Freddie, or the number of second homes, and they may tighten their belts again." As the Treasury tightens its credit belt, the opportunities for Acra Lending and other big players in the private sector have continued to expand.

Already representing roughly 15% of the total mortgage space, private lenders have increased their business as investors and high-equity borrowers turn to private financing to reach their financing goals. “The private lending space is regulated just like the agency space,” Lind says. “A high percentage of the time we can find a solution for our borrowers. We have the ability to look outside of our guidelines and find solutions for very difficult situations." Acra Lending has led the private lending pack and positioned itself as one of the primary non-QM lenders in the country in 43 states, with a network of offices across nine states, from Nevada to the upcoming expansion in the Carolinas.

Equity-based borrowers and investors The days when the non-QM space was viewed as a bad credit option are behind us. As Lind explains, the opposite holds true. He points out that, in most cases, investors and borrowers have very good FICO scores and plenty of equity to put down to secure private financing. “These loans are not subprime loans,” Lind says. “Our borrowers are putting down real equity into loans. The weighted LTV of our loans is around 66%. This means they are putting down, on average, 34% to 35% equity as a down payment." Acra Lending’s client base is made up of high-equity borrowers as well as first-time and seasoned investors seeking private mortgage solutions where the banks fall short. “A lot of our files are self-employed borrowers, and this has really become the backbone of the non-QM or private lending space after the CFPB and Dodd Frank implemented the ATR guardrails in 2014,” Lind says. “More and more people are becoming entrepreneurs and work for themselves. This is a huge part of our business. We have seen it grow year over year and expect this trend to continue.” Another large portion of Acra Lending’s client base is made up of savvy investors looking to negotiate private financing. "Investors represent about 35% to 40% of our production,” Lind says.

Now, Acra Lending is focusing its efforts on other key areas, including negotiating private financing for investors interested in small-balance multifamily properties with anywhere from five to 29 units. The lender is also setting its sights on financing seasoned investors for the many opportunities in ground-up construction to meet housing shortage needs. An inclusive culture When Lind took the helm of Acra Lending in 2020, it was decided that rebranding would be just the thing to propel the company forward. Stemming from a banking background and bringing with him a vision of inclusiveness, Lind was opposed to a top-down management approach. This vision he brought with him proved to be extremely lucrative. “We did a little over $2 billion in 2021, and we're projecting a doubling to $4 billion plus of originations in 2022,” Lind says. “From November of 2021 to January 2022 we are up 23% in the number of loans funded." Lind has also overseen a doubling in the size of Acra Lending from 200 employees in 2020 to well over 400, and has plans to continue to hire in all areas of the organization. “I'm a big [company] culture person and feel culture is very important. Without revamping our culture to where it is today, there is no way that we could have been able to double the size of the company."

“Our borrowers are putting down real equity into loans. The weighted LTV of our loans is around 66%. This means they are putting down, on average, 34% to 35% equity as a down payment”

Tips for success When asked what areas are of special concern for private lenders looking to conquer the non-QM space, Lind says: “Liquidity is extremely important when you are a lender and is the number one thing that comes to mind. “Having strong capital partners is also extremely important, whether it’s our institutional partners who purchase our loans or capital partners [banks] that finance our business. We partner with money-center banks, including Morgan Stanley, Barclays, Credit Suisse, and Goldman Sachs." He adds that paying attention to detail and thorough underwriting are other areas private lenders need to focus on.

Lind predicts that there will be a lot of brokers wanting to get into the non-QM space, as the refi market is projected to go down by 60%. He sees this only as further motivation to continue to excel in the private lending sphere. “There is a huge tailwind for us,” he says. “My prediction is that the private lending space is going to have a very good stretch, not only for 2022 but for many years to come.”

Strong customer support for alternative lending options

Keith Lind, Acra Lending

Percentage of total mortgage originations held by the biggest US banks, including Bank of America, JPMorgan Chase, US Bancorp, and Citigroup

50%

21%

Source: Business Insider Intelligence’s

Online Mortgage Lending Report

According to a retail banking survey of 5,200 respondents from 13 countries:

who had not used a non-bank platform said they would be willing to try one

30%

believe money management and investment needs may be better addressed by non-banks

40%

Source: Oracle’s

Digital Demand in Retail Banking Survey

Private financing options Lind points to the wide range of private loan options the company can offer a motivated investor or fiscally savvy entrepreneur. Among the list of lending programs, Acra Lending offers financing for fix-and-flip and ground-up construction, in addition to borrowing options for multifamily properties. “We just launched a fix-and-flip channel. The average house in America is 40 years old, and a lot of them need a facelift, so [fix and flip] is a vertical that we're very excited about, and we're looking at it as a lending space that's going to be around for a very long time,” Lind says.

Keith Lind, Acra Lending

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2011

2021

Big banks not holding all the mortgage cards

Percentage of total mortgage originations held by the biggest US banks, including Bank of America, JPMorgan Chase, US Bancorp, and Citigroup

Source: Business Insider Intelligence’s

Online Mortgage Lending Report

50%

2011

21%

2021

Big banks not holding all the mortgage cards

Percentage of total mortgage originations held by the biggest US banks, including Bank of America, JPMorgan Chase, US Bancorp, and Citigroup

Source: Business Insider Intelligence’s

Online Mortgage Lending Report

50%

21%

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