HOUSINGNEWS REPORT
PRIVATE LENDING GOES PUBLIC
Lastly, the LendingHome Opportunity Fund II — announced in October 2017 — has $100 million in commitments. The commitments, said Stech, come from “more than 40 investors including asset managers, international funds, family offices, and high net worth individuals. An additional credit facility of up to $300 million brings the fund’s total potential assets to $400 million.” This year, as another example, Angel Oak Capital Advisors, LLC obtained $90 million with a securitization backed by “fix-and-flip” loans to residential real estate investors. “The securitization,” said the company, “features an 18-month revolving period in which paid collateral is replaced with new collateral. The average loan balance in the securitization is $199,052, with original terms between six and 12 months.” If securitization becomes more frequent and widespread we could see the development of standardized private lender products. In turn, more short-term dollars will become available for real estate investors, pressuring “We love banks. Our business was born from the massive unsatisfied demand created by larger financial institutions’ unwillingness and inability to serve real estate investors.”
below, the delinquency rate soars to 61 percent.
down both interest rates and borrower costs — and making private lending more common and widespread. Assets Versus Credit The private lending business exists today because the traditional banking system does not serve everyone with a banking need. If you represent “too much” risk, if you’re not seeking a standardized loan, or if you need to close in a few days then for many traditional lenders you’re more of a worry than an opportunity. “We love banks,” said Krattenstein of Asset Based Lending, LLC. “Our business was born from the massive unsatisfied demand created by larger financial institutions’ unwillingness and inability to serve real estate investors.” Neither traditional banks nor private lenders want high-risk borrowers and with good reason. Figures from credit score pioneer Fair Isaac show that borrowers with credit scores of 800 or better have a 1 percent delinquency rate. With credit scores of 579 and
While traditional banks rely on property values and credit standing to qualify borrowers, private lenders base their loans in great measure on asset values, a type of financing historically known as “hard money” lending. “We consider hard money lenders and private money lenders one in the same,” explains Linda Hyde, Executive Director of the American Association of Private Lenders (AAPL). “It’s just a matter of preferred terminology now. They are both typically asset-based loans, backed by the strength of the real estate purchase rather than the financial credentials of the borrower.” Risky Business Bobby Montagne, founder and CEO of Walnut Street Finance, explains that cable TV makes “it look like every home flip is a success. We understand first as flippers and now as lenders that flipping can be risky, so we vet our deals carefully.
ERIC KRATTENSTEIN CHIEF MARKETING OFFICER AND HEAD OF SALES ASSET BASED LENDING, LLC
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APRIL 2018 | ATTOM DATA SOLUTIONS
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