Hard Money Lenders - Tightening Criteria Incoming?

Question

I'm sure most folks have seen that JPMorgan Chase is tightening mortgage borrowing standards. What does the economic outlook mean for hard money lenders, and for portfolio lenders?

I know it's not conventional lending like what JPMC is tied to, but how will the outlook change your lending? Are you tightening restrictions, worried about overleveraged investors in your current portfolio? Conversely, are you excited about the opportunities that will arise from a downturn and seeking to expand your portfolio?

Really interested to know what actual hard money lenders are thinking, or folks who have worked with one in recent weeks. Lot of speculation about what lending is going to look like in the near future, would like to hear your take and game plan.

Jeff S. · Answer

Not incoming, Account Closed, it’s already here.  I know the owner of one referral website who personally vets all his lenders.  No, it’s not the phony baloney lenders on CIX.  It’s a legitimate site with many large and small private lenders.  He held an informal telephone survey recently and found 80% of his lenders have stopped lending, temporarily at least.  Many others have increased their rates and/or lowered their LTV’s.  We are in the 80%.

Having seen many flippers and private lenders go under in the 2007 bust, you couldn’t pay me to lend money now.  We are still getting phone calls, but fewer and fewer, and I always ask the same question, “How do you know your ARV, is correct?”  I don’t care how many week old comps you could show me of identical homes one block away.  In my view, no one but Houdini could predict now
the value of your flip when you complete it in perhaps 6 months.

If we doubled our interest rate and halved our LTV, how much will we make if you go belly-up or can’t sell when you complete your rehab?   We don’t want to lose capital and we certainly don’t want your house.  In the extreme, we also don’t need a predatory lending lawsuit for loaning without a clue that you have a viable deal.  These were particularly popular during the last housing bust as borrowers got desperate.

I’d love to think that 6 months from now we will be looking back and asking, “Covid what?”  But with unemployment at 4.4% and rising and the government injecting more than $2 Trillion into the economy now, and having been through this once before, we’re sitting tight until the dust settles.  This could take months or it could be years.

Jay Hinrichs · Answer

A lot of this depends on where the HML gets their funds to lend.. the HML companies that took on institutional credit facilities seem to have stopped or I should say their institutional money stopped so they dont have any money to lend.

those that broker private folks money are still working but very cautiously from what i can see.

And a few of the bigger ones are still working with their core borrowers.. For sure those with little or no experience are going to find it tough right now.  HML while folks want to see fico's its not a fico driven loan product its a cash and experience product.  So the borrower who screams Hey man i have an 800 fico whats up.. well whats up is Fico's dont repay loans cash talks and experience is critical

Ann Bellamy · Answer

Wish I could vote for @Jeff S. more than once.  We are still taking calls, but turning down most deals, as so many borrowers are using current comps to predict the future.  I have approved 1 deal, but it was at 24% of purchase price (from 2017).  When I asked him why he chose to work with me, he answered that I was the only one who returned his call.  While I'd like to think it was my sterling reputation,  clearly most HM lenders in my area are shuttered.  I only know 2 others taking calls at this time.

Ann Bellamy · Answer

As well as those of us who lend our own money.

Odie Ayaga · Answer

As Jeff S. already said it's already happened. There's no chance any lender would wait this long to change their policies now they'd all adapted in some way or another. Some, like @Derek Dombeck said aren't changing, others have changed their terms, and others just flat aren't lending at all.

Michael Ohara · Answer

Account Closed I have access to private money and they are still cutting checks for NOO residential properties.  No slow down at all.

Account Closed · Answer

Wow, thank you all for the replies! Really meaningful discussion, thank you again. I think the reality is hard for folks to face but I agree that we really have no idea how long it's going to take for things to stablize, and that the skyrocketing unemployment, pumping trillions into the economy, bottom oil prices, etc., have deep ramifications. Some of them are clearly already here, a halt on lending was unthinkable just a month or two ago.

I know you're supposed to be greedy when others are fearful, but I think we're going to wait for the dust to settle a bit before we look for our next property. See how prices look come Fall, Winter 2021.

Hard Money Lenders - Tightening Criteria Incoming?

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