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are increasingly revealing their prefer- ence for the digital product. At Lend- ingTree, our new mortgage experience that eschews phone calls is selected by borrowers at a rate of 4 to 1. For lenders that can successfully create a digital product, there is an excellent opportunity to gain market share in an industry where many players will be at risk of exiting. The affordability challenge that we mentioned earlier creates the second industry-specific risk — and oppor- tunity. In order to improve access and gain share, more lenders are offer- ing non-qualified mortgages. Inside Mortgage Finance reports that non-QM loans increased 24% from the previous year through the first three quarters of 2018. This makes it a growing product in a shrinking market, even though non-QM loans still make up less

proposals on how the GSE should be reformed. We believe the odds of pas- sage are slim given the divided Con- gress, and any changes would occur over several years. However, it is a risk factor that lenders need to be wary of. For lenders who find themselves on the margin because of macroeconomic factors, technology factors or product factors, the prospect of major invest- ments on the horizon to comply with whatever changes GSE reform brings could be the straw that breaks the camel's back. Thus, uncertainty in 2019 is par- ticularly high for mortgage lenders. Measures of macroeconomic policy uncertainty are extremely high, with some even higher than they were during the financial crisis. This makes it more difficult for central banks to calibrate monetary poli- cy and could curtail overall business investment

first is the increased digitization of the mortgage application process. While this is an unambiguous good from an overall industry perspective, it does create challenges for individ- ual players because of the significant investments that are required to create a digital process that delights customers. Some effects of the broader digitization of financial ser- vices have revealed themselves early in the year. The announced merger between BB&T and SunTrust Banks has as one of the primary motivators, cited by the CEOs of both banks, the need to invest aggressively in tech- nology in order to compete. Mortgage lenders, particularly those with a monoline business, will face a particular challenge of having to make significant investments at a time when profitability and revenues are in decline or stagnant. Those that do not have the capacity to invest in technology will either have to merge to increase scale, or they may find themselves unable to continue in the business. Customers Growth in 2018 was largely driven by one-time factors, including the tax cuts and the less- talked-about fiscal stimulus. The effects of these policies are diminishing, and slow growth is baked into the cake.

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than 3% of originations. Lenders with the capa- bility to offer non-QM loans will be able to mitigate some loss of revenue and volume in their standard products. While consumer demand is expect- ed to decline across



and expansion plans and have a negative effect on consum- er sentiment. LendingTree will continue to evolve to provide the best experi- ence for both con-




all mortgages, Fannie Mae's Mortgage Lender Sentiment Survey expects demand for non-GSE eligible

sumers and lenders. Whether that’s adopt- ing digital experiences to align with shifting consumer

• • • • • • •


mortgages to weaken the least, and the MBS market is getting prepared for more non-QM issuance. Beyond borrowers with less-than-stellar credit, these loans target self-employed, high- net-worth and investor borrowers. Third, GSE reform may finally get its time in the sun in 2019. The change in leadership at the FHA increases the odds of reform. Industry players such as the Mortgage Bankers Associa- tion and the National Association of Realtors are putting forward their

behavior or refining our matchmak- ing algorithm to connect borrowers with the right loan and lender as guidelines change, LendingTree will continue to be an industry leader. •


Tendayi Kapfidze is Chief Economist at LendingTree, leading the company’s analysis of the U.S. economy with a focus on housing and mortgage market trends. Learn more about LendingTree at



28 | think realty housing news report :: april / may 2019

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