National lender RCN Capital announced last week that it is once again offering its full suite of financing options, becoming one of the country’s first private lenders to do so after enduring the ravages of COVID-19.
“Things are looking up,” says RCN’s head of treasury and capital markets, Justin Parker. “It’s been an uphill battle getting things back to where they need to be, but we’re back at it. It’s good to be lending again.”
RCN had been lending into late April and early May, but at a greatly reduced capacity that saw it halt funding for short-term fix-and-flips, bridge loans and long-term rental loans. Those programs are all back, but in augmented forms that reflect the increased risk in the market.
“We crafted new guidelines for all of our products,” Parker says, including lower leverage and stricter FICO credentials. “Not massive discrepancies from prior guidelines, but generally more conservative than what we had previously.”
Scaling back up has also meant crafting an exit strategy for RCN’s loans that is appropriate for the current lending environment. The dearth of usual options – keeping their loans on their balance sheet and having a bank extend leverage against those loans, selling them to aggregators, or securitizing them – added to the complexity.
“Options two and three were gone. We didn’t have any capital partners in the space that were extending funds and trying to buy paper, and the securitization market was effectively shut down,” Parker says.
RCN then went to work determining the quality of their loans and how to accurately price them, an arduous process in the current environment, but one that ultimately led to the company’s readiness to lend. They are now in a position where they can meet the pent-up demand they’ve been seeing from their clients and protect themselves on the back-end by working to ensure their loans will trade at par or better in the secondary market.
Parker is highly optimistic about the future. He sees a return to the days of 90 percent LTV in the near future, with leverages improving at the same rate as the economy.
“More lenders will come back, securitization will come back, and capital partners are going to come back,” he says.
He’s equally positive when thinking about the U.S. labor and real estate markets. Despite the continued increase in jobless claims, Parker expects the unemployment rate to fall precipitously.
“I don’t think it’s going to be a slow, steady pace. I think a lot of people are going to be able to go back to work once life resumes as normal,” he says.
That means more buyers for a market where housing supply is at an all-time low, a situation that bodes well for housing prices.
“I think that one fundamental,” he says, “is what’s potentially saving the home market.”