COVER STORY
RICK SHARGA
Although critics accuse the lender of renaming subprime loans “nonprime” because the former term carries such stigma, Sharga is adamant that the loans are named something different but similar because they are designed for would-be homebuyers who need a different take on lending but this time are being served responsibly rather than haphazardly. “To call these subprime would not do these loans justice,” he declared. “These are very good borrowers and very good customers who need their loans to be managed responsibly and respectfully.” These days, Sharga continues to shape the narrative on lending and real estate from his position at Carrington. Still clearly a media favorite, he makes regular appearances on television and in other media to comment on current events and make predictions about the future. One thing he made particular note of for 2018 in his interview with Think Realty Magazine was issues with pricing and affordability in most major metro housing markets, how these factors are affecting builder mentality and, interestingly, commercial real estate growth in these areas. “In a lot of these hot markets you will see something of a mini-boom in construction in any area where there is room to expand or grow in a way that a developer believes will both create in-demand housing and allow a margin for profit,” he said. “Look just outside the hottest areas of the country, and you will see what are, essentially, bedroom communities going up and, in conjunction with that, commercial construction. I find that positive, because it implies there will be a STRAIGHTFORWARD PREDICTIONS FOR THE 2018MARKET
Here are Sharga’s three must-dos:
growing job market in the area around the residential construction. That is different from the last housing boom.” Sharga recommended real estate investors look for opportunity where others may have given up: in some of those “hottest markets.” “Whether you are buying a home to rent or flipping it, there are opportunities in these high-demand, low-inventory markets. For example, there is not a lot of construction activity in San Diego or Los Angeles because it is not an option. People still want to live there, however, and investors who can find those ‘hidden’ deals are doing very good business.” He also recommended investors look to areas with commercial construction activity, particularly building warehouses, for future growth. “As online retailers continue to command a higher and higher share of retail sales, they need somewhere to warehouse and distribute those goods. Places near hot markets become valuable distribution hubs. As employees move into the area, you will see restaurants, hotels, and office buildings pop up as well to support that population,” he said. “Multifamily construction and senior living offer opportunities in nearly every market. “By and large, most people believe this is still a good time to buy a house,” Sharga concluded. “Furthermore, most economic indicators show we should be selling more houses than we are. The only reason we are not is because there are not more to sell, so if you have a good source of product (houses) to sell, then you’re probably going to do pretty well.” •
One, you need to carefully un- derwrite the loans. That was the biggest thing missing during the housing boom. Common sense in underwriting tells you if one part of an application looks risky, you do not make a loan unless you offset that risk somewhere else. A bor- rower with a low FICO score needs a larger amount of cash reserves and probably a higher down payment, for example. Carefully underwriting to us means manually underwrit- ing, so we have a live human being trained and skilled in looking at borrowers making these decisions.” Two, you have to service those loans properly. That means a real relationship with the customer. Nonprime lending requires high- touch servicing enabled by high- tech in the background all while training staff to anticipate issues and help customers work though them. Most servicing operations are only set to efficiently process high volumes of perfect, on-time pay- ments from borrowers. When that doesn’t happen for some reason, people fall through the cracks and the system crashes and burns as we saw during the foreclosure crisis.” Three, you must provide real, ac- tionable education. We developed an app that explains monthly pay- ments, tax payments, insurance payments, homeowners’ associ- ation payments, and everything else so that the borrower has to repeatedly confirm what they told us about their finances is true and verify they understand what they are signing up for.”
Rick Sharga (L) talks market conditions and the lending environment with John Alkire (R), Executive Vice President of Servicing Support at Carrington.
BACK INTHE HEADLINES, STILL
“We are experts in working with what you might call less-than-perfect borrowers. To a great extent, these are people who would have qualified for a mortgage before the foreclosure crisis. They have traditionally been viewed as creditworthy and would, by and large, have paid their mortgages on time. The difference between today’s loans and what was happening during the early 2000s is simple but vast: We are carefully underwriting every loan and we offset risk. We don’t throw our loans or our borrowers into an app somewhere that is crunching out loans for people who cannot afford them.” Sharga cited a recent Urban Institute report indicating about 6.3 million borrowers who historically would have qualified for a loan have been denied since 2009 because lenders are, understandably, refusing to take on any
perceived risk in their mortgages. “We view this as an opportunity to provide a chance for homeownership and for home investments that otherwise would not exist,” he said, noting Carrington’s highly personalized underwriting process also enables real estate investors to purchase additional properties in many instances. Carrington’s activities during the downturn also contribute to its confidence in the nonprime lending process today. The company was one of the country’s largest purchasers of non- performing loans during that period “and we managed to get many of those loans re-performing, keeping thousands of borrowers in their homes,” Sharga said proudly. “We believe if you focus on doing three specific things very well, there is very little extra risk in a nonprime loan.”
KEEPING THINGS SIMPLE Readers will probably not find it surprising that Carrington’s debut of a “nonprime” mortgage loan has been met with mixed responses. The program “looks an awful lot like pre- crisis subprime lending,” snarked one industry publication, while another warned, “[Subprime mortgages] were blamed for the biggest financial disaster in a century.” Sharga, true to form, keeps his responses to these criticisms simple and on-point, carefully and patiently explaining the difference between Carrington Mortgage’s nonprime loans and the subprime loans issued prior to the housing crash. “We are not lending to borrowers who have no ‘skin in the game,’ so to speak,” he began.
Carole VanSickle Ellis is the editor of Think Realty Magazine. She can be reached at cellis@thinkrealty.com.
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