Hard money lender on how brokers should react to investment loan limits

He shares how brokers can shift and capture some of this volume

Hard money lender on how brokers should react to investment loan limits

The FHFA’s new limits on second home and non-owner occupied lending have pushed deals into Darel Daik’s arms. Daik (pictured) is CEO of Noble Mortgage & Investments in Texas, a specialist hard-money lender for investors with some volume still done on the conventional side. As many lenders and brokers are restricted to selling only 7% of these loans to agencies, he’s got business and questions coming his way from mortgage professionals across the country.

“The 7% rule has affected a lot of lenders,” Daik said. “Some of them are pricing themselves out of the market, saying that they’re not going to stop doing these loans, they’re just adding extra hits to the rate. Instead of investors getting something in the high fours, these lenders are pushing it closer to 6%. They’re pricing these loans such that they don’t get as many as they would in the past.”

While that’s the case among some, Daik is still able to find deals and lenders who want to close these loans at lower rates. His own hard money loans, which are typically for shorter-term fix and flips, are now enjoying a pricing advantage. He can now compete against those 6% loans with something under 5% for the right deal. While he’s seeing more brokers come his way, Daik explained that he’s also seeing new alternatives enter the mainstream.

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Foremost among those alternatives, Daik said, is non-QM lending. He’s seen significant improvement on the pricing of non-QM products, from 9% rates five or six years ago down to the 5% range on an investment property today. While he doesn’t think these loans are as good as a 30-year fixed, they’re pretty close to it.

To handle the extra demand coming his way, Daik has hired two more loan officers in the past 60 days. While demand is ticking up for these loans, the simple fact of housing supply will constrain any volume take-offs, even for the lenders best positioned to benefit from this new agency restriction.

When those deals do come in, though, they will come at a higher price than a conventional loan would. Government underwriting reduces the price of a loan, something the whole industry has learned for a decade now. Daik makes an effort to explain to his clients upfront what exactly is going on in the marketplace and why their loan might come in a bit pricier than they would otherwise be used to. His strategy, he said, is to deliver good news with the bad, and offer an attractive alternative to the loan that’s no longer on the table.

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As brokers and originators look to make sense of these restrictions and capitalize on any opportunities that could arise, Daik believes that staying informed is key. Brokers need to know that these restrictions are in force and what alternatives are out there, so they aren’t left scrambling.

“You need to be an expert in the field,” Daik said. “No matter what you’re doing, if you’re a mortgage person or auto mechanic, whatever you are, you need to be an expert in your field. You have to make sure that you’re constantly keeping up with everything going on in the marketplace. Do your research, sign up for different newsletters, read all the articles that have anything to do with mortgage. Find out what’s going on at Fannie and Freddie. Don’t assume that everything’s going to stay the same, either. Because one thing I’ve learned in over 20 years in this business is that nothing stays the same. It’s constantly moving - sometimes getting money becomes easy, and sometimes money becomes difficult, but there’s always options if you educate yourself.”