Dan Monson, of Sente Mortgage, on the ultra-competitive market taking charge of the Texas city

Houston, we have a problem – there’s a hedge fund invasion. The Texas city is undergoing huge economic growth, with 140,000 moving there between 2022 and 2023. And, with median monthly rent of $1,573 and 57% of households in Houston rent-occupied, it’s a hotspot for investors. However, alongside these investment opportunities comes challenges – especially for first-time buyers.
“It’s a little controversial,” Dan Monson (pictured), of Sente Mortgage, told MPA. “The hedge funds have hit Houston hard, buying up a lot of housing inventory. I've had this discussion with people who say they're only buying a very small percentage of the market – and that's true. But they're buying a very large percentage of affordable, quality homes. If it's a house of a certain age and a certain bedroom count in a certain area, they're buying a large segment of those homes. And I think that's really hurt first-time home buyers.”
‘They’re taking much more time to find the right property’
However, investors aren’t immune to the preciosity of the mortgage market rates, as high as they are, are still a concern. According to Zillow, as of December, 30-year fixed mortgage rates ranged from 6.64% to 7.44%, with 15-year fixed rates sitting between 5.94% and 6.27%.
“I’ve seen individual investors pull back because the higher interest rates are not allowing them to cash flow like they were a few years ago,” Monson said. “They’re taking much more time to find the right property at the right price with the right rental rates. I think that has actually slowed down cash investors using cash or mortgages to purchase.”
This has inadvertently spurred on a rise in refinancing. Monson told MPA that people are taking a higher rate – refinancing from 3% to 7%, so they can take their credit cards from 25% to zero.
“They’re willing to take a higher interest rate to do that. Cash-out refinances are very specific to what’s happening in your life and these cash-outs are solving problems. On the purchase front, working predominantly in the Houston market, we’re not seeing a pullback in transfers. We’re not seeing a pullback in companies moving here or moving employees here. There’s no exodus out of Houston. We’re an energy town that’s diversified into medicine and technology, we offer a wonderful lifestyle, and homes are still affordable compared to the rest of the country, so our market has been protected.”
In the face of such a hectic mortgage market, Monson has seen a rise in clients using non-traditional income sources in securing home loans. According to research from Oberlo, as of October, the U.S. had approximately 9.84 million self-employed individuals – and it’s not always plain sailing for this group to get a good deal in the mortgage market. Research from Truss Financial found that 49% of mortgage applications from self-employed individuals are denied, with that figure rising to 73% for self-employed borrowers with credit scores below 700.
‘The only problem I'm seeing is the same one we've had for years’
“We're definitely seeing as many loan program options as we have the last 10 years,” Monson said. “The non-QM [non-qualified mortgage] companies have made some tweaks to their programs to make serving first-time homebuyers easier. I had a manager from a non-QM company call us recently saying, ‘Hey, we need volume, what you got? We have exceptions if needed.’ That tells me they’re being aggressive in underwriting buyers.
“The only problem I'm seeing is the same one we've had for years: a client comes to you looking for a 6-6.5% interest rate, and you explain to them that rate isn't available because the underwriting is an issue. It can take a minute for them to realize the underwriting is worth an 8% rate.”
This issue reared its head recently for Monson when a client told him his rate was too high and she’d be looking elsewhere.
‘Regardless of the result, I treat people with respect’
“She told me the non-QM rate was too high. I told her my underwriting manager spoke with Fannie Mae, and if Big Bank is giving her a pre-approval, the only way Big Bank is going to get that loan done is if they make a mistake,” he told MPA. “You need specialized underwriting.”
Later, she returned, unable to close with the bank, and Monson was able to assist her.
“When a client goes elsewhere, they can be shy about coming back to me. They were rejected by another lender and they are embarrassed. Frankly, the client previously rejected me, so I’m not always happy. The mood in which we each leave that last conversation is impactful later.
“Regardless of the result, I treat people with respect and gratitude. One loan is not going to change my lifestyle, but one relationship might,” he said.