Company founder on what the mortgage industry needs

Award winning CEO urges bold solutions to home-building crisis

Company founder on what the mortgage industry needs

The mortgage industry may be navigating through troubled waters, but it’s not been a bad period for John Beacham (pictured), all things considered.

In June, the CEO and founder of New Jersey-based Toorak Capital Partners, was one of only two people from the mortgage industry named by Ernst & Young as one of New Jersey’s entrepreneurs of the year.

Normally reserved for outstanding professionals in the healthcare and biotech industries, the coveted business award listed 13 people who had caught the eye of the prestigious services firm for demonstrating “entrepreneurial spirit, purpose, growth and impact”.

Beacham admitted it came as a pleasant surprise to appear on the list. “As an industry, we’re not recognized for being particularly entrepreneurial as we basically operate under very predefined roles, so it’s really unique and kind of remarkable to be recognized for being innovative!” he told Mortgage Professional America (MPA).

Read more: CEO’s solution for housing crisis

Beacham’s outspoken views on the US housing shortage crisis have certainly made him stand out from the crowd, having consistently argued for more multifamily homes to be built, and that zoning laws should be relaxed.

That suggestion did not go down too well with the National Association of Home Builders (NAHB), who pointed out that the majority of Americans prefer to live in single family homes.

But while it’s not hard to see why the head of a leading capital provider to the residential real estate lending industry would favor such a stance, Beacham’s arguments are grounded in pragmatism, even if they run counter to the nation’s homebuying preferences.

“The reality is that most homes that we’re building at this point are not going to be in the center, they’re going to be at the margin somewhere because in New Jersey there’s not a huge amount of land to build homes on,” he said.

If innovative solutions are needed, that could involve making truly bold decisions beyond converting single family homes or office space into multifamily properties, he said.

“In the UK, we do a lot of pub conversions, converting those into residential properties. Churches (disused as a result of declining attendance) are another example. There’s no one answer. You’re not going to take a church or an office and turn it into a house - we’re going to take that and turn it into a multifamily property.”

Before too long the housing industry – and the homebuyer - may have no choice but to consider such offerings. According to a report from the US Department of Housing and Urban Development and the US Census Bureau, soaring interest rates and building material supply chain disruptions caused overall housing starts to fall 14.4% in May, the biggest drop since April 2020.

Add to the mix stringent zoning laws that often stymie construction projects and it’s clear why Beacham’s views have not been rejected out of hand.

He was equally outspoken about the market’s prospects amid rising rates, inflation, and forecasts of a lengthy recession.

“Certainly, we don’t expect prices to increase like they did in the past,” he said. “You have margins getting compressed, and you have cost and wage inflation that’s very, very significant, especially for big chunks of subcategories of products, such as construction work and properties, so the borrower is going to get compressed on two fronts, both with higher rates, and higher cost of materials. It makes me think there’s a risk of prices going down slightly next year.”

Read more: The country’s least affordable markets are beginning to cool

Beacham said he had experienced firsthand those difficulties and admitted he’d been forced to pass the rise in costs on to his lending partners. 

“Like everyone else in the mortgage world, we’ve increased our rates significantly over a short period of time. I’m trying to be fair to our lending partners out there and giving them as much notice of rate increases as possible because they’re making loans and expecting us to fund them. That’s been a challenge,” he revealed.

Building projects are also taking longer to complete, an added challenge that has resulted in budget and price adjustments as well as reviews on timing predictions.

Despite these headwinds, Beacham cited two products that were still thriving at Toorak - bridge loans and 30-year rental loans, which have seen rents exceed the debt service by a significant margin.

“Both are performing really well right now. In terms of the bridge loans, we are seeing almost no delinquencies, because people generally don’t default on loans where there’s a lot of money in the equity of the property.”

Nonetheless, he warned that this could change next year “in a more stressed environment” with recession, the probability of even higher rates, and the added difficulties faced by homebuyers.

Rental loans were a different matter, though. Landlords renting their property out and paying a fixed amount of debt service on a 30-year mortgage were seeing rents increase with inflation. “That portfolio has done extremely well and will continue to do very, very well,” he said.

As the recent recipient of an award that recognized his entrepreneurial spirit, could he give any advice to mortgage professionals currently struggling in the market?

“We live in an amazing country…we’re so fortunate to be in a place where we have such a massive and diverse and huge economy,” he said. “The best advice I have for people is to find something that you’re the best at and really, really focus your time on that. I think a lot of people end up kind of following the herd and not necessarily thinking about where the new opportunities lie.”