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The Official Magazine of AAPL January/February 2019


BUSINESS STRATEGY 4 Ways to Improve Hard Money’s Reputation

ASSET MANAGEMENT How to Minimize Defaults

MANAGE & LEAD Stepping Up the Game for Industry Advocacy

A.J. Poulin Living a Life of Adventure & Extreme JANUARY/FEBRUARY 2019


No Money Down Fix and Flip Funding No Bait and Switch, No Teaser Rates, No Catch

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Residential Capital Partners, we help you do it better, faster, and smarter with no-money-down on $75,000 to $1,500,000 loans for fix-and-flip investors. Contact us to qualify now, so your next flip can be funded when you find it.


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• Deals up to 70% of ARV • 9-Month Term • Quick Commitment – Approval 2-3 Business Days • Low Fees • Fast Closing • No Prepayment Penalties





• Roll Your Points into the Loan







06  W hy H ar d M oney H a s a Ba d N ame by J ef f Levin

10  B eyond Simple Deal M e t r ic s by B obby Mont agne

14  R  e s ear c h I s C r i t ic al to a Young US C annabi s I ndu s t r y by Pete A smus


T he Ver y L a s t N ail: H ow to Minimize De f aul t s on Your I nve s t men t

by Chr is Ragland



24  W hy You ’r e Ugl y on C amer a by Chr is sey B reaul t

44  P r i v a te L ender Ad voc ac y I s Mi s s ing i t s M ar k by K at Hunger ford


C hair man o f t he (Skate) b oar d wi th A . J . Poulin



48 LEGAL N on - Bank L ender s A r e M ak ing a Big Spla s h by Melis s a Mar torella


Housing Divers t y C an Help the Market Weather a Cool Down

by Rober t Greenberg

58 L A S T C ALL


H ow You Re s pond to C r i t ic i s m i s C r i t ic al wi th Eddie W ilson



The Fairmont Washington D.C.





*AAPL Membership required


2019 FUND MANAGER FORUM The American Association of Private Lenders and Geraci Media invite you to step foot in our nation’s capital. Discover inspiration dripping from every historical site while surrounding yourself with fund management professionals, all whom are eager to share - and soak in - new knowledge.

Register early to save! 4




The new year begins as an empty slate, with nothing but countless possibilities and hope. But, the year will soon be filled with activities, promises and commitments, pleasures and disappointments, work and play, and friends and family members. I predict it will be a busy one.


Chairman, Affinity Worldwide


CEO, Affinity Worldwide


Executive Director, AAPL


Editor in Chief, Private Lender Director of Marketing & Member Services, AAPL


Senior Account Manager, AAPL




Pete Asmus, Chrissey Breault, Robert Greenberg, Kat Hungerford, Jeff Levin, Clay Malcolm, Melissa Martorella, Bobby Montagne, Caleb Olsen, Chris Ragland, Eddie Wilson

COVER PHOTOGRAPHY Elizabeth Trujillo

Private Lender is published bi-monthly by the American Association of Private Lenders (AAPL). AAPL is not responsible for opinions or information presented as fact by authors or advertisers.


Visit www.facebook.com/aaplonline or email PrivateLender@aaplonline.com.


Visit www.issuu.com/aapl, email PrivateLender@aaplonline.com, or call 913-888-1250.

For article reprints or permission to use Private Lender content including text, photos, illustrations, logos, and video: E-mail PrivateLender@aaplonline.com or call 913-888-1250. Use of Private Lender content without the express permission of the American Association of Private Lenders is prohibited. www.aaplonline.com Copyright © 2019 American Association of Private Lenders. All rights reserved.

Most people these days seem to avoid New Year’s resolutions, having found them either impossible to keep or a trivial idea in the first place. Aren’t we always trying to do better? But there’s something about the new year that can be inspirational. It’s the time to make necessary and beneficial changes. You can start by taking a few pointers from Chrissey’s article, “Why You’re Ugly on Camera,” in which she offers some tips and tricks for more effectively creating awareness around your brand and image. It can also be a good time to break with harmful patterns of the past—to release grudges and forgive, to say, “enough of that” and move on. As your association, the American Association of Private Lenders (AAPL) will continue to work for you and add the necessary value for your growth and the organization’s growth. Let’s all resolve to be patient as we experience growing pains and changes that will occur in the coming months. Much of the year’s discussions will take place in the political realm as we continue to move down the legislative path, giving each of our members a voice for change in the industry. As Kat Hungerford finds in her research while writing “Private Lender Advocacy Is Missing Its Mark,” as a group, we have missed the mark in representing in the halls of state and federal legislators. Whatever your political leanings, we urge you to study the issues and get involved. The new year will bring changes, as every year does. And though changes can be challenging and uncomfortable, they’re a necessary part of life. It’s best to face them head on rather than to cling to the comfort of memories. A new beginning is valuable. We hope its promise will last long into the year. We hope to hear from all of you, and we wish the best for you and your loved ones in 2019.


Executive Director, American Association of Private Lenders

The American Association of Private Lenders is an Affinity Worldwide Company. JANUARY/FEBRUARY 2019



WHY HARD MONEY HAS A BAD NAME 4 ways to counter hard money’s sometimes disreputable image. by Jeff Levin

“Hard money” lending got its name back during the Great Depression after a large swath of the banking industry failed across the country. When property owners became desperate for cash, private individuals started lending money against real estate for interest rates that were higher than what the remaining banks charged.



It’s unknown exactly what the “hard” part of the expression refers to. Most people assume the term came about because these instruments are collateralized by hard assets like real estate or land, as distinct from soft intangible assets or future cash flows. Given its origin in the Depression, the reference could be because these loans were hard to get, or hard to pay back. Or, it could have been borne of the expression “cold hard cash,” meaning paper and coin currency.

WHAT’S IN A NAME? Regardless of the origin of the term, hard money lending tends to have a negative connotation in the marketplace. It’s associated with high interest rates, so critics tend to overlook its major benefits:  H ard money lenders usu-

ally decide on a loan application in seven to 10 days, compared to 1-2 months for a traditional bank.

 A lthough due diligence

is still required with private money, it involves much less red tape. The lender’s underwriter is not reviewing conditions to satisfy some thirdparty investor’s credit committee. In most cases, the lender is the investor. Private lenders also aren’t subject to the burdensome regulations created by the 2010 Dodd-Frank Act.

 For many construction

projects, including fixand-flip residential work, hard money loans are based on the property's after-repair value (ARV); that is, what it’s expected to be worth once the project is complete. In contrast, a conventional lender must base it on the property’s appraised value at the time of origination.

In all these cases, the private lender absorbs significantly

more risk than a bank would; therefore, the reward in the form of interest rates and origination fees must be higher. For borrowers, a high interest rate for a short period is often a minor expense compared to the money they stand to earn on the project. Because the only collateral available to the hard money lender is the property that securitizes the loan, if a borrower defaults, then foreclosure is likely. This is where the rep-

utation of hard money lending sours. When deals go south, it’s common for borrowers to fight foreclosure by raising usury claims against the lender. All states have usury laws in place. These vary based on the types of lenders, borrowers and loan amounts. Many states like California have laws that cap interest rates generally. These caps are subject to certain exceptions based on what type of party made the loan or what kind of property was used as




collateral. But, in many cases, borrowers in default raise legal challenges to argue that their lender should not be exempted. Penalties for violating usury statutes include invalidation of a borrower’s interest obligation, recovery of double or triple the usurious interest paid, nullification of the loan or fines ranging up to six figures. Some states, such as Florida, even impose criminal penalties. Given that the state usury laws have teeth, it is not uncommon to see even spurious



legal claims raised against hard money lenders.

interest rate but, without any explanation, switches them to a completely different loan.


In other cases, predatory lenders extend credit to borrowers without ensuring the borrower can service the debt, and then rapidly foreclose if the borrower misses a payment. The industry is mostly unregulated by federal or state authority; therefore, unscrupulous types have contributed to a bit of a rough reputation over the years.

Like every other industry, private lending has seen its share of bad apples. Bad practices include bait-and-switch schemes in which a hard money lender promises the borrower a fixed-rate loan or specific

Considering that the reputation of hard money lending may be

tarnished in some quarters, what are private lenders to do? First and foremost, rely on very clear terminology for the products offered, like “bridge loans,” “asset-backed lending” or “shortterm private debt.” In addition, there are four ways private lenders can go the extra mile and help restore the good name and reputation of the industry.

01 M onitor and stay com-

pliant with usury laws in the states in which you do business // While they may not always apply,

a private-money lending professional should always stay aware of the usury statutes in their jurisdiction and stay on their right side. Failing to do so can encourage a lawsuit, given the extensive damages potentially available to a borrower—and lead to more bad publicity.

02 Follow the TILA-RESPA

Integrated Disclosure (TRID) rules for borrower documents // This is like inoculating your firm against claims of predatory lending for residential properties. These federal regulations changed the way lenders must review documentation, proving that the borrower can repay the loan. Because private lenders rely on the property’s equity as collateral, there can be a temptation to skip them. But if you are ever sued for a predatory lending process, demonstrating to the court that you followed TRID due diligence is compelling evidence to exonerate you.

03 S tay on top of your

online reputation and any new discussion threads // Create a process to monitor online activity in your market, including review sites like Yelp and Glassdoor, and network sites like LinkedIn, Facebook, Twitter and others. There are apps that do this work for you, but at minimum, set up a Google alert for your business name as well as your main competitors.

Find complainers quickly and address their concerns fairly. Allow anyone to post feedback in a prominent page of your website, but ask each client who was happy with your loan to post a positive review. If someone posts a negative review, answer it publicly while demonstrating your commitment to “make it right.” Like all businesses, private lenders are responsible for creating the image of the firm they want customers to see, but don’t think this image begins and ends with your website. Thanks to social media, it is a much wider world out there.

04 Add new blog content

to your website, Facebook page, etc., on a regular basis // Blogging is an ideal way to share your company’s values with the public. Use blogging to explain the pluses and minuses of hard money loans, without being “too sales-y.” Demonstrate your industry expertise and begin to establish yourself as an influencer. Doing this well will get you lots of positive comments and help push any lingering old negative content off the first page of search engine results. Done well, it can also become a great vehicle for lead generation.

In “Hamlet,” Shakespeare famously writes, “Neither a borrower nor a lender be, for loan oft loses both itself and friend.” Naturally our industry disagrees. Private lending often provides the liquidity necessary to get exciting real estate projects off the ground and completed. But over the years, the term “hard money lending” has taken some reputational hits. If you follow the four suggestions above, you can contribute to a better understanding among the public of the important role of private lending in the U.S. market. ∞


JEFF LEVIN Jeffrey Levin is a bestselling author and the founder and

president of Specialty Lending Group (SLG), a boutique

private real estate lending company servicing the

Washington, D.C. Metro area. Prior to launching SLG, he

was the co-founder and CEO of iWantaLowRate.com and

Monument Mortgage. Levin

is a recognized authority on real estate investing and, as

such, a frequent lecturer and panelist. He is a member of

the American Association of Private Lenders and serves on its Education Advisory

Committee. He is the author of the Amazon best seller,

“The Insider’s Guide to Private Lending,” which details his

experiences in private lending and advice for individuals looking to get into the

business. Levin earned a B.A. degree from the American University in Washington, D.C., and lives on Capitol

Hill with his wife, Dunniela, a

Canadian trade lawyer, and his two sons, Jack and Charlie.




Beyond Simple Deal Metrics Increase your revenue stream by understanding and funding complex deals. by Bobby Montagne


eal estate lenders know what

they’re doing. They have an eye for a good deal, and they know they can help a borrower make

a substantial profit when presented with the right opportunity.

But many lenders adhere to a strict set of guidelines that require any deal that comes across their desks to conform to simple, specific criteria. If the



deal doesn’t fall within their narrow parameters, they’ll pass on the opportunity. As a result, the investor and the lender both lose out on a potentially viable and profitable project. There are a lot of good potential deals that we—and our clients—miss out on because we feel shackled by a rule book. When a deal is more complex than the industry standard, take the time to see if it’s actually risky, or if it’s just outside the realm of what you’re used to doing. A lot of complex investment deals can be successfully underwritten. When we properly understand the underlying metrics, truly know the local real estate environment, understand borrower capabilities and the borrower’s exit strategy, we can structure the deal in a way that suits the needs of all parties.

COMPLICATED DOESN’T EQUAL RISK Real estate investment has become much more popular over the last decade. Thanks to HGTV shows like “Flip or Flip,” “Fixer Upper” and “Property Brothers,” a lot of first-timers have been dipping their toes into the waters of real estate investing. But at the crux of

those shows is simplicity: You find a dilapidated house in an up-and-coming neighborhood, spend as little money as possible to make it functional and aesthetically pleasing, and then sell it for a profit. And that’s what most hard money lenders are set up to do: simple projects, simple budgets, easy-to-understand real estate. But as we all know, not every real estate investment opportunity is this easy. An experienced lender will understand that complexity and risk are not the same thing. An experienced lender isn’t afraid to look past the surface issues of a complex real estate opportunity to find a way through. Such a lender will analyze the unique terms and specifics of each complex deal to discover the possibilities that others have missed. An experienced lender knows their clients are looking for more than a loan; they’re looking for an experienced partner who understands how to craft an exemplary deal structure. With the rumblings of a housing slowdown on its way, lenders could soon find that the easy deals that have become their bread and butter are starting to become more elusive. When that happens, knowledge of how complex deals work could be critical not only to lender profitability but to survival.

DEAL STRUCTURE IS THE DIFFERENCE So, what exactly makes a deal simple? It comes down to the ease of the project and the accompanying deal structure. Generally, when a real estate investor finds a house at a price that seems low for its location and can show it has strong potential for profitability once it has been rehabbed, a private lender can easily understand and underwrite the deal. The lender will do a bit of due diligence, but if there are not a lot of complicating factors, they’ll be inclined to move forward with the loan. Easy does it. And the deal structure is easy: create a straightforward loan that finances a percentage of the acquisition and rehab, create a construction reserve and fund the project. Of course, there are a lot of real estate opportunities that don’t fit into this cookie-cutter approach. What if an investor wants to turn a single-unit building into a multi-unit building? Or, to take things a step further, what if they want that multi-unit building to feature retail units on the first floor? This type of project is much more difficult to comp, takes a lot longer to bring to

fruition given the more complicated zoning and permit process, and requires a high-level of borrower expertise. A complex investment deal goes a lot further than simply approving a loan and closing on it. There’s the overall deal structure to consider, and it’s just as important as the loan itself. Deals such as these require the expert knowledge of a lender who is capable of taking the extra time and effort to manage several processes simultaneously. It needs someone who can craft customized loan terms specific to each project. Many lenders are not qualified to handle deals like these and are rightly justified in steering clear of them. But, an experienced industry veteran will know exactly how to walk customers through the entire process and negotiate a deal that makes sense and is mutually beneficial.

COMPLEX EQUALS CUSTOMIZED PROCESS Every complex real estate deal is unique, but the approach is the same. To uncover the pathway to success, lenders with experience in complex deals




take the long view. They make sure their investors are working with the right team: contractors, architects, permit expediters, etc. They examine the deal from all angles to make sure it makes financial sense—not just for them, but for their clients. Every complex deal is customized for the exclusive needs of the opportunity, which means tailoring the structure of the deal to fit its requirements perfectly. For example, if a deal requires crafting bifurcated loans to be funded in two phases to enable the release of soft costs in the first phase, experienced lenders have the industry know-how to make it happen. When it comes to complex real estate deals, experience matters. That’s why it’s important for lenders to possess a high level of real estate lending knowledge. Experienced lenders can handle just about every type of project, from single-gut renovations to large-scale condominium construction and mixed-use developments. Whether an investor wants to turn a single-unit home into a duplex or craft condos out of an abandoned auto garage, a knowledgeable lender will be there to see it through.



CASE STUDY: A DENTIST WALKS INTO A HARD MONEY LENDER To help illustrate an experienced lender’s commitment to complex investment deals that many other lenders would turn away, let’s examine the approach used to help a dentist and his wife. The couple owned the building where the dentist had practiced for more than 20 years. As his retirement neared, they began to consider what to do with the building. They began working with a local consultant who suggested their building was in an ideal location for new condominiums. However, as they began shopping around for financing, they were met with “no” everywhere they went. Neither traditional nor private lenders wanted to touch the deal, as it was too far out of their comfort zone. Knowing they had a great opportunity on their hands, they kept looking, and eventually found a lender who had a deep understanding of the local real estate landscape. This lender listened intently as the couple and their consultant presented the opportunity. He personally examined the property and agreed with their assessment. The idea of turning

the building into condominiums had merit and potential for real profitability. The lender understood the neighborhood and the potential market for condos. Another plus in this project was that the borrower had hired a very experienced contractor that had done many other projects similar in size and scope. So, the lender created a uniquely tailored deal structure for this specific circumstance and guided the couple from inception to sale. The deal looked like this:  I nitial funding was pro-

The project was completed, and everyone walked away happy. Although many hard money lenders—not to mention traditional lenders—are unable to see through the difficulties of complex deals, a truly experienced lender can see beyond simple deal metrics to uncover a wealth of opportunity. ∞


vided to pay off the small existing loan on the property and cover startup (soft) costs for permits, architects, insurance, contractor mobilization, etc.

 I nterest payments were

rolled into the loan to save the borrowers from making monthly payments throughout the 12-month loan term.

 T he loan was structured

more like a line of credit, with the borrower paying more interest as more construction funds were drawn and specific milestones were reached.

The project was a huge success. The couple got a $2.5 million loan against a building projected to become worth $3.4 million.

BOBBY MONTAGNE Bobby Montagne is the

founder of Walnut Street

Finance, a leading private lender in the mid-Atlantic

and member of the American

Association of Private Lender’s Education Advisory Committee. Walnut Street Finance is the

sponsor of the Walnut Street Finance Fund II LLC, a $30

million private lending fund

offered under SEC Rule 506. It allows investments as low as $50,000 and provides a preferred dividend of 9 percent with no fees.







It separates facts from deliberate misinformation, myths and hype.

As legal cannabis becomes increasingly mainstream, research is critical to debunking some of the myths that were advanced to back its banning. How does research add value to a young industry that revolves around a plant shrouded in misinformation? How can research advance the maturity of the cannabis industry? Quite simply, research helps to separate facts from misinformation, myths and hype.




“It [research] assists in clarifying the plant’s benefits as well as product and industry-wide development.”

HEALTH BENEFITS DEMYSTIFIED We were taught to look at the cannabis plant from its potential for abuse. We developed a belief that the plant is inherently destructive. But the health benefits of cannabis have been consistently researched in recent years. In January 2017, the National Academies of Sciences, Engineering and Medicine published a report entitled “The Health

Effects of Cannabis and Cannabinoids.” It summarized the current evidence available on both the therapeutic and the harmful effects of marijuana. Further, the report recommended that research be conducted to develop a comprehensive understanding of the health effects of marijuana and that steps should be taken to overcome any regulatory barriers that make it difficult to research marijuana’s health effects. In November 2017, a World Health Organization committee

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Call us today at 833.401.6546 or visit 5arch.com to learn more.



concluded at a meeting that “in its pure state, cannabidiol does not appear to have abuse potential or cause harm.” However, WHO does not recommend cannabidiol for medical use currently. Initial research from animal and human studies in the New England Journal of Medicine and other reported cases shows that “its use could have some therapeutic value for seizures due to epilepsy and related conditions.” Further, the U.S. Department of Health and Human Services was granted a patent on “cannabinoids as neuroprotectants.” What was discovered is that compounds found in the cannabis plant can be used in treating the effects of brain damage in the instances of “stroke and trauma, or in the treatment of neurodegenerative diseases, such as Alzheimer’s disease, Parkinson’s disease and HIV dementia.” The U.S. Food and Drug Administration (FDA) hasn’t approved the marijuana plant itself to treat medical problems. But some states do allow its use for certain health applications. In 2018, the FDA did approve three cannabinoids (a derivative of marijuana) as drugs.

MULTIPLE INDUSTRIES IMPACTED In addition to its potential health benefits, cannabis has proven invaluable in other areas as well. According to Science News, many stressed bee species are flocking to industrial hemp plants for pollen to feed their larval young. And, industrial hemp has potential for use in textiles, building materials and pharmaceuticals. As more and more research develops, industries and opportunities will continue to grow.

CANNABIS RESEARCH PROMOTES DEVELOPMENT Research is important because it promotes product development. Research is the fuel needed to fire investments across industries. Investors can use research findings to develop products that best suit their markets. Furthermore, industry players can use research data to position themselves advantageously in their market segments. Lastly, business development professionals in the cannabis industry can optimize research findings to reverse previous assumptions because they know what works and what doesn't.

RESEARCH CLARIFIES BENEFITS Research helps investors understand cannabis benefits better. Consequently, they can use those benefits to push for favorable legislation at the federal level. The way in which the federal government classifies the cannabis plant clearly shows the government considers it a dangerous substance. To reverse the situation, legislation proponents need research and evidence-based benefits to demonstrate to the government that the benefits by far outweigh any perceived negatives associated with the plant. Moreover, research findings assist in making favorable buyer decisions since people buy benefits, not products. Research is crucial to America’s young cannabis industry. It is a great tool for dispelling falsehoods and myths about the plant. Also, it is critical to the sector because it helps in advancing user safety through accurate product and consumption information. Lastly, it assists in clarifying the plant’s benefits as well as product and industry-wide development. ∞


PETE ASMUS Pete Asmus is a real estate

investor who specializes in marketing, branding and

raising capital. He has a well-

established history of securing capital for projects such as

flipping high-end residential

properties and creating small

businesses. He has personally purchased and invested in

mobile homes, single-family

homes, restaurant franchises and commercial buildings.

Pete has spent the last decade learning, teaching and speak-

ing, making connections and

building relationships with top deal makers in the industry. Additionally, he is an editor

at Investor Quarterly and an

award-winning radio host. He also manages a database of

more than 2.5 million investors and owns the world’s largest

LinkedIn real estate investment group with over half a million members. He is the author of

“Force Your Dreams into Reality,” “The Question Factor” and

“The Stock Market Refugee.”





THE VERY LAST NAIL How to minimize defaults on your investment. by Chris Ragland





hen you invest your money, in most cases, you relinquish a certain amount of control over what happens to it. If you’re

invested in the stock market, for example, you are at the mercy of innumerable economic factors and capricious faceless investors. But, what

“The process [of minimizing default] starts during loan underwriting, before the first penny is even disbursed.”

if you could maintain control over the outcome of your investment, or at least trust that the steward of that investment is doing it for you? If all investments involve risk, the risk in private lending for real estate investment is borrower default. Default results in costly real-estateowned properties, or REOs.

Anyone who has ended up with this kind of distressed asset can attest that they are nothing but a headache—a very expensive headache. Not only are REO properties nonperforming, they incur significant carrying costs. If you’re a private lender, how do you minimize the likelihood of REOs? The easy answer is you must control the process

from start to finish. Here are some tips for doing that.

UNDERWRITING THE LOAN The process really starts during loan underwriting, before the first penny is even disbursed. You should have a thorough understanding of the scope of

work for any project—right down to the very last nail. A solid underwriting process considers a number of different factors to ensure the proper scope of any project. If the lender doesn’t get this right, the loan is in danger before it even begins. Every aspect of loan underwriting takes direct aim at the value of the finished property,




whether it is a renovation or a new construction home. Your due diligence as a lender is crucial at this stage. Determining the market value or the after repair value (ARV) of a home is really about whether your borrower can realistically achieve his or her target sale price. In a perfect world, studying comparable homes in the neighborhood that have recently been sold should begin to give you an estimation of what the property will be worth, but that isn’t where it ends. Does the borrower’s scope of work achieve a result similar to the other homes in the area you are comparing to? If your comps all have exotic hardwood floors and marble countertops, but the scope of work for your property states that it will have Pergo and laminate countertops, then you’ll miss the mark by a wide margin. Assuming the borrower’s plan does fit the target home value, does the budget for the project fit the bill? If the borrower finds during the project that they didn’t budget the right amount to afford 30-year shingles and has to downgrade to a lower-quality alternative,



they just erased some of the home’s estimated value. You also have to ensure the borrower is building the right home for the neighborhood. The project has to align with the character of other homes in the immediate vicinity. If it doesn’t, it might prove difficult to sell once it hits the market. In most cases, whether the home is a new construction or a renovation project, you want it to be more attractive to buyers than other homes in the neighborhood. But, if it is so different that it’s out of place, the borrower might struggle to find a buyer. Knowing the market conditions for a home’s geographical area is also crucial to estimating the after repair value or the market value of the home. That data can tell you how difficult it might be to sell even an ideal home. The average number of days a home spends on the market, the months of available inventory and the average median home price will all affect the selling price of the home once the project is completed. Since you are essentially forecasting the market a year or more out, you should also be familiar with the trends in these market conditions over time.

CONSTRUCTION CONTROL Once the loan is made, the lender is committed, so you better have already done your due diligence to the best of your ability. What you can control at this point is the construction process. Your construction control must be on point throughout every step of the development phase. The main objectives of the

asset management department are to make sure the project is progressing according to the stated scope of work and to ensure the quality of work that is being done. Time is money, so the timeline of a construction or renovation project is central to the success of the borrower and, correspondingly, to the lender. In fact, the lack of construction progress is often an early indicator of a looming loan default, so asset management needs to

make sure that the project stays on the rails. Just getting the work done isn’t the only objective. And, usually good enough isn’t good enough. Asset management has a responsibility to hold the borrower accountable for the quality of work and materials laid out in the underwriting process, so the project stays on track to hit the target market value when all is said and done. There is a stringent and methodical process by which

an asset management division controls the construction costs and the progress of any given project. The draw process essentially incentivizes the project operator to produce high-quality work and to adhere to the plan. Once the borrower completes a specific phase of the construction, they’re required to submit a draw request along with their original budget, receipts and lien wavers as proof of completion and to verify that any



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contractors doing the work were compensated. The latter is to ensure there is no danger of mechanic’s liens being filed on the property. Once the request is submitted, the actual work needs to be verified by a thirdparty inspector. Following these steps, the borrower can be reimbursed for the work completed. The construction or renovation of any project should proceed in this fashion to help the lender maintain visibility and to hold the borrower accountable throughout the development phase to avoid any surprises.

EXITING THE LOAN It’s important for the borrower to “bake in” the time necessary to market and sell the property. If they followed the plan and budget laid out during the underwriting process, the borrower should be able to come within range of their target profit—assuming they can sell the property relatively quickly. This is where having a thorough understanding of local market conditions is crucial. Since most of the work is done at the beginning of the

project, hopefully the borrower will be able to sell the home in the time anticipated and won’t encounter any setbacks. But that’s never guaranteed. Many things can derail a real estate investment, but there are certain things you can control, which is why you need a firm grasp over what’s involved and clear insight into even the smallest detail of any real estate project. ∞


CHRIS RAGLAND Chris Ragland is the chief

operating officer of Noble Capital, a private invest-

In part two of this series, we will discuss in greater detail collateral monitoring during the loan, the draw process, insurance and taxes.

ment firm specializing in real estate. He is responsible for

the day-to-day operations of Noble Capital, as well as for

spearheading the expansion of

existing and new business lines for the company. He hosts The

Noble Capital Radio Hour, a talk radio show produced by Noble Capital. Chris spent 15 years

building firms that specialize in loan servicing, loss mitigation, full service brokerage,

insurance, management,

maintenance, rehabilitation and REO disposition.




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Why You’re Ugly on Camera 10 tips for lighting up the small screen by Chrissey Breault



On-camera interviews are an effective way to create awareness about your brand, put a human face to your company and manage a crisis. Even so, websites and social media are packed with examples of failed interviews. Media outlets themselves are quick to poke fun at their on-air gaffes, proving that television can be one of the most challenging interview platforms to master, even for those who think they are pros.

Media training helps you develop the skills to give great interviews or testimonials. These 10 tips will ensure your small-screen appearances are always a hit.

SPEAK THEIR LANGUAGE Be aware of the audience,

and tailor your messages to speak to that audience. Are

they busy parents getting the family ready in the morning,

KNOW THE OBJECTIVES Before you start diving

enthusiastically into the

world of lights and cameras, consider whether doing an interview will help achieve your objectives. If so, can

and how do you measure its

success? Write out clear goals and keep them in mind when forming your key messages

or business owners keeping an eye on the stock market?

Whoever is listening, speak in

a way that relates to them and their interests. Avoid using

industry jargon and too many facts and figures. Be ready with at least one quotable

grab or soundbite that will

stick in people’s minds and be repeated.

and selecting the right

programs to appear on.

BUILD KEY MESSAGES Build your key messages, and


practice those messages so

Do your research into the

and effectively. What are the

program, its target audience and even the background

of the reporter you will be

working with. Finding out the angle is essential to being prepared for the kinds of

questions you could be asked. It will also help you decide if this opportunity is right

for you—not all publicity is

necessarily good publicity.

they come across consistently main points you really want to get across? How will you

respond to tough questions? Compile a comprehensive list of potential questions,

starting with the questions

you really want to be asked right down to the ones you

MIND YOUR BODY LANGUAGE The words we say are

important, but they account for only about 7 percent of

our communication. A massive 55 percent of our communi-


language, and 38 percent from

Put yourself in interview

The main areas to be aware

means being professional,

cation comes from our body

our vocal tone and expression. of are posture, eye contact

and hand gestures. Some key points to remember:

 Keep an open posture;

avoid hunching over and other closed-off poses.

mindful of any recording

equipment in the room—it

could be switched on before

and after the actual interview. Basically, if you don’t want

something to be recorded,

 Keep your movements


good eye contact with the interviewer to show you are engaged.

to a minimum. All your movements should appear natural; for example, your hand gestures should complement your words and not appear that you are over-motioning.

 B e mindful of fidgeting or

thoroughly, so be prepared

 Relax. Being on television

for absolutely anything.

punctual and polite. Be

then keep it to yourself.

A reporter or journalist will have done their research

mode from the get-go. That

 L ean forward and maintain

moving around in the seat too much; doing so will distract the viewer.

really don’t want to be asked.

best way to make a good impression is to appear as if you do television interviews all time. The trick is to fake it till you make it.

can be a daunting experience even for the most confident speakers. The

Try using affirmative statements such as “I believe

that…” instead of negatively charged statements like “I

wouldn’t say that.” Doing so

frames your message positively with the audience. Be enthusi-

astic and passionate about your topic, and speak as though

you’re truly interested in what you’re saying. Remember,

video is a monotone-free zone! If the topic is serious or dull,




speak in a neutral tone, but

ner. Bridge everything back

view. If the feedback is mostly

phone call to the journalist to

rather than tense and uneasy.

not 100 percent sure about

opportunity to start retweet-

will appreciate it and be more

remain relaxed and engaging

to your key messages. If you’re

something, don’t speculate

or say, “no comment.” Say you

don’t know currently and offer

KEEP CALM AND CARRY ON We’ve all heard the stories of

to get back to the interviewer with more information later— and follow through!

suddenly takes an accusatory


example. The best way to han-

Monitor public reaction while

and positivity. Never mirror

when things have slowed

dle a curveball is with grace aggression or negativity.

No matter how frustrated or

attacked you may feel, main-

tain a neutral and patient man-

for their support. It also means you can engage your public in

say thank you. The journalist

likely to remember you, mak-

ing you a valuable contact for future press coverage. ∞

a discussion of your message while the topic is still fresh in people’s minds. If feedback relations team monitor the

reporter throws a question

position or argument, for

ing and thanking the public

is negative, have your public

interviews gone wrong. The you weren’t prepared for or

positive, this gives you the

issues and respond promptly


and appropriately; don’t wait

for an overflow of bad press to build up overnight.

the story is new and again

down. Keep your eye on all your social media pages as well as online mentions of

your company or the inter-

GIVE THANKS If the story was good, be sure to follow up with a note or

CHRISSEY BREAULT Chrissey Breault is the

director of marketing and member services for the

American Association of Private Lenders (AAPL). Before joining AAPL,

Chrissey worked in county

government as a communica-

tions expert. Her more than

15 years in communications and marketing started in the hospitality industry with Hilton and Marriot

brands. For more than seven years, Chrissey managed

midmarket hotels along the East Coast and the Deep

South. She holds an associate degree in hospitality and

travel from Bradford School in Pittsburgh, Pennsylvania, and holds certifications in Adobe Web Design and volunteer management.



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Family, extreme sports and chickens are all in a day’s work for Applied Business Software’s A.J. Poulin. by Caleb Olsen




A.J. Poulin has never shied away from trying something new. “I’m a sponge. I read all the time and always want to have a new adventure.”

NOT A TIGHTROPE WALKER, BUT . . . Today, Poulin balances time between his role as the vice president of sales at Applied Business Software (ABS) with activities like surfing, snowboarding, fatherhood and running a cage-free chicken egg business with his 16-yearold son Hunter. He also believes everyone should go bungee jumping at least once in their life. “I live for stuff like that,” he said. Poulin manages the Applied Business Software sales team in all their operating territories as well as the marketing team across all their products. Currently, these products are rolled out across 23 countries, covering six continents. The Mortgage Office—ABS’s flagship product—is a tool



established lenders use to originate and service loans and manage mortgage pools. After discovering a need among smaller lenders for a product similar to The Mortgage Office, but with fewer options and more simplicity, ABS developed a light software called The Loan Office. Now, Poulin helps companies access and use these products. “Companies that purchase and roll out our systems streamline their back-office operations and have a much easier time attracting capital,” Poulin said. “Those things together help fuel growth, and that’s what we see over and over again—our customers growing and expanding.”

STRETCHING BOUNDARIES Poulin doesn’t just push the limits with extreme sports. Part of the success ABS has expe-

rienced is a result of Poulin’s work ethic, willingness to take risks and personable nature. Years ago, when Poulin was ABS’s sole sales representative, he sold $1 million in a single year. It was a company milestone. Not one to settle for initial success, Poulin set even higher goals. “I took that number and made it my new baseline,” said Poulin. “Now I have a great team in place, and I help

each of them hit those kinds of numbers.” In nearly 20 years at ABS, Poulin has increased the firm’s reach and abilities, evolving it into a global enterprise. He has played a key role in helping ABS become the de facto lending platform in the U. S., and both The Mortgage Office and The Loan Office’s use have soared, with no hint of slowing down.

“I’m doing exactly what I want. I got lucky. I was able to merge my various backgrounds into the perfect position.”

So, how was someone who’s so creative, drawn to the outdoors and touched by a bit of wanderlust become attracted to selling loan servicing software?

When Poulin was 13, he quit the football team to sell magazine subscriptions doorto-door for a fundraising contest. He won second place out of 500 kids. That experience taught him a few lessons that have affected his approach to sales—and life.

“I’m doing exactly what I want. I got lucky. I was able to merge my various backgrounds into the perfect position,” he said.

“First, never be afraid to ask for the check. Second, if you don’t get it, go knock on other doors. Third, a ‘no’ right now may


turn into a ‘yes’ tomorrow if you leave the door open.” Poulin went on to graduate from Boston’s Northeastern University in 1989 with an engineering degree. But, he began his career as a model and actor who traveled the world. He decided to move abroad and set up a new home base in Tokyo, Japan, and later in Madrid, Spain. During that time, casting directors sought him out and featured him

in more than 100 television commercials for brands like Levi’s, IBM, Acura, Buick and Miller Beer. Poulin worked around the world in cities such as Amsterdam, London and Barcelona. After becoming acclimated to having the eyes and cameras facing his direction, Poulin moved to Los Angeles and took to the stage. He became a stand-up comedian and improv comedy performer,




WHAT MAKES A.J. POULIN TICK? We asked Poulin if we could ask him some really “tough”

questions. As you can imagine, he wasn’t afraid to answer them, knowing full well the controversy his answers could cause. Here’s what we found:













taking classes at the legendary Groundlings Theater and learning the craft from industry celebrities like Kathy Griffin and Lisa Kudrow.

been a sponge, very curious and thirsty to learn. So, put all of that together, and I have the perfect gig—I use all of these skills every day,” he said.

While honing his comedic abilities onstage, he also applied his skills to paper. Before long, Poulin was writing scripts for hit ʼ90s TV shows, including “The Michael Richards Show,” “Daria” and “Malcolm in the Middle.” He directed “A.J.’s Dogumentary”—a 1999 documentary about dogs and their overly-affectionate owners, which won the audience favorite award in three out of four film festivals that year.

When asked what he loves most about his work, Poulin made it clear that he likes to keep things new, fresh and fun.

A short time later, Poulin took his passion and skills to ABS, where he quickly moved up the ranks, eventually earning his current role of vice president of sales. “The TV writing, stand-up comedy, acting and improv helped me be quick on my feet,” he said. “My years of traveling around the globe helped me to quickly study people and decipher someone’s personality. My engineering degree with a focus on software helped me on the technology side. My sales drive comes from growing up without a lot of money and wanting to change that. Lastly, I’ve always

“It’s a box of chocolates. Every sales call is different, every lead is different, each region we sell to is different, and we have inquiries from all over the globe, from many different industries,” he said. “You never know what you’re going to get when you pick up that phone. It’s also incredibly busy every day, all day, which I love. On many days I look up and it’s 4 p.m., and I wonder where the day went.” With so much success and so many experiences, you’d think Poulin would opt to take it easy and relax. But, Poulin says that’s not his style. “I learned early on that if you work hard, you’ll be rewarded financially,” he said. “With that, you get to make the life you want. How cool is that? I’ve been at ABS for 19 years now, and on most days, I’m the first person here. Why? I want to lead by example and want my work ethic to be contagious.” One of the areas where he’s leading by example is with his family. Poulin is working to

implement an entrepreneurial mindset within his own household. Recently, he played a supporting role in helping his son Hunter start a business called Chickens Without Borders. The not-for-profit organization sells and delivers cage-free chicken eggs and donates the net profits to two charities for veterans. “Honestly, we were up to our eyeballs in eggs, and we wanted a way to share them with people,” Poulin said. “We have 28 chickens, so we were getting about two dozen a day. The chickens roam around in the grass eating bugs and seeds, versus just corn, so the eggs taste amazing.”

The Chickens Without Borders endeavor gives Poulin the opportunity to teach his son the intricacies of business that he may not have encountered elsewhere. “Basically, the stuff they don’t teach you in school—balancing the books, tracking expenses, P&L statements, effective marketing techniques and things like that,” he said. But the upside goes beyond teaching his son to run a business. Poulin says he’s helping his son to understand that “we can help, in our own small way, the men and women who serve our country.”

As for the future of Chickens Without Borders, Poulin said: “We’re still scrambling to figure that out—pun intended.” ∞

To learn more about Applied Business Software and its products, visit TheMortgageOffice.com. For more information about and/or to order eggs from Chickens Without Borders, visit ChickensWithoutBorders.com. To learn more about Poulin’s career in Hollywood, check out his page on IMDB.com. If you’d like to connect with him, find him on LinkedIn.


CALEB OLSEN Caleb Olsen is a writer in Kansas City working for a marketing

firm called Rivet. His work has

been published in newspapers, magazines, radio and TV. He is studying for a master’s degree at UMKC and performs improv comedy in his free time. Find Caleb on LinkedIn,

calebolsen.com, or by emailing calebwolsen@gmail.com.




INSPIRATION THROUGH ASSOCIATION Private lending professionals from across the country embraced AAPL’s 9th Annual Conference (at Caesars Palace, Nov. 4-6, 2018) to learn new skills and grow their network.

 unding Database, LendingWise, F Liquid Logics, The Mortgage Office and LendTech working together to help lenders simplify loan originations.  evin Kim explains how to become K bulletproof against your competition.



J ohn Beacham was joined on stage by his Toorak team as he accepted AAPL’s Member of the Year Excellence Award.  eft to right: Chrissey Breault L and Bobby Montagne take a break to help the Go Media team set up their shots; and Ray Sturm of AlphaFlow took the stage to a packed room to talk underwriting and data analytics in the resi bridge loan market.




 APL presented Brett Crosby A AAPL’s Member of the Year Excellence Award with his PeerStreet team.  eft to right: Ken and Ginger L Lacy of Veterans Path Up mingling during AAPL’s VIP Welcome Reception; and Elizabeth Morales and A.J. Poulin announce the winner of their drawing during the closing ceremony.






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ROLLING OUT THE GREENS FOR VETERANS Golf, drinks and good deeds flowed as AAPL partnered with Veterans Path Up for their first charity golf tournament. Bear’s Best Las Vegas hosted AAPL members who have a passion for building stable housing for veterans and veteran families. L eft to right: David Canning, Trish Drape and Tim Drape; and Aaron Chapman takes a swing.



 en Lacy of Veterans K PathUp, Eddie Wilson, David Jorgensen and Bill Fairman of Carolina Hard Money.  eft to right: Scott L Walker, Matt Flynn and Matty Parsons; Ken Lacy of Veterans PathUp and Linda Hyde; and Tim Drape and Matt Flynn.




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by Kat Hungerford



Private lenders like you work tirelessly to grow your business and push the industry out of niche obscurity into a viable alternative to traditional lending. Still, there is one glaring arena where you have missed the mark: representing yourselves in the halls of state and federal legislators. The fate of issues that impact private real estate lending are too often in the hands of people who know too little about it. Lawmakers see hundreds of thousands of bills annually at both the state and the federal levels, many of which have direct—if unintentional—impact on private lenders’ daily operations.

When we look back at some of the recently implemented regulations, many of which created operational hurdles, the post-mortem shows that many of them didn’t have to apply to private lenders.

TALKING ABOUT YOU, HMDA. January 1 marked a failure in private lender advocacy. That’s the date when the 2015 updates to the Home Mortgage

Disclosure Act took effect. The expansion required that many private lenders report data to the Consumer Financial Protection Bureau for their nonconsumer (businesspurpose) loans secured by residential property. Allowing a consumer-focused agency even a modicum of regulatory oversight over business-purpose loans is problematic. Beyond that, such measures set a precedent for continued legislative conflation of traditional financing with private lending. Tonguein-cheek, you may remember that the latter industry exists specifically to fill the market gaps that government regulation caused in the former. The sad part? It could have been a win. This year marked a victory for credit unions in the same arena in which private lenders floundered. The industry successfully lobbied via Senate Bill 2155 to increase the HMDA reporting threshold from 25 to 500 transactions. The problem? The carveout applied only to insured depository institutions and credit unions, which you may notice private lenders are not. With S-2155 essentially creating an exemption for small credit unions performing similar transactions as private lenders, the issue is not that regulators

refuse to listen. It’s that private lenders lack a voice.

LOCAL VOICE LACKING TOO And it’s not just federally. In many ways, states have as much power to unintentionally create operational and legal nightmares for the small businesses caught in their overbroad regulatory nets. For example, in January, Florida House and Senate subcommittees passed bills that would allow the state’s Office of Financial Regulation to:  O versee mortgage

loans made for business purposes.

 Require mortgage

licensing for brokers of these loans.

 Review companies

offering or originating private loans.

The respective House and Senate bills had strong bipartisan support and were expected to pass. Many states had eyes on Florida as they determined their own reaction to federal SAFE Act requirements. The SAFE Act doesn’t require mortgage loan originator




licensing for business-purpose loans secured by one- to fourunit residential properties. Despite this, states continue to eye the trend, primarily due to the ease in regulating collateral type over loan purpose. Florida would be the fourth state to push in this direction, after Utah, Oregon and Idaho. If you’re a private lender, this circumstance is—or should be—a scary one, regardless of your plans to enter the Florida market. Beyond the not insignificant financial burden that



reason that he’d vetoed previous bills, which he had claimed were too restrictive of residential mortgage lending.

AAPL. “Being able to pinpoint this outcome to our action as an association put our status as an advocate in the spotlight.”


This time, the American Association of Private Lenders (AAPL) launched a letter-writing and call campaign, asking private lenders to contact the governor’s office with their position on the bills.

Back to Florida. If you were wondering, those bills didn’t pass. Governor Rick Scott vetoed, but not for the same

“Governor Scott told us that our informational letter to his office was one of his primary reasons to veto,” said Linda Hyde, managing director of

While government may not intend to specifically regulate and create undue hardship for the small businesses that make up the private lending industry, it cannot safeguard the interests of a group it either doesn’t understand or doesn’t know exists. Before the contact campaign, Governor Scott had no idea of the size and scope of the private lending industry in Florida or

licensing compliance places on small businesses, it points to the increasing inevitability of similar regulation passing across the U.S. Startlingly, that inevitability is not because state governments see a specific need for additional oversight of private lenders.

the unintended consequences of legislators’ overbroad prospective regulation. AAPL’s success was in providing the right information to the right person at the right time.

SO, FLORIDA WAS A WIN. NOW WHAT? The private lending industry is getting too big. Well, too big to fly under the radar in the face of regulation that increasingly conflates it with conventional consumer lending. Florida’s success has shown the industry that it can influence outcomes in its favor. But AAPL still considers Florida private lenders’ mobilization to have nearly been too little, too late. Florida narrowly missed its addition to the SAFE Act implementation overreach tally. “Now is the time to organize our plan of action to protect private lenders’ interests on Capitol Hill and the state legislatures,” said Hyde. “While private lending is still something of a niche industry, it’s growing closer to becoming a mainstream alternative. That means a lot more eyes on us. It won’t just be unintentional

overreach we have to watch for much longer.”

ARE ASSOCIATIONS ENOUGH? No. Although an association acts as a unified, national voice for its members and a primary source of information and advocacy to legislatures, there are three things associations lack in their efforts regarding private lenders:

01 C onstituency 02 M oney 03 Data Constituency // There is power in many squeaky wheels all squeaking together. While associations can speak generally on behalf of their members, there is no real replacement for individual constituents to express their stance on a subject. Private lenders must make time in their busy schedules to look beyond their individual businesses. They must contact legislators and tell their story on how a bill will impact their livelihood. Beyond individual efforts, they must also engage with their chosen organizations to build upon existing efforts and create strength in numbers.

Money // Money always speaks, but it shouts when it comes to elected officials. While private lenders don’t yet have a PAC for donations, they can and should still individually research and donate to officials and/or causes that are good for their businesses. Data // How much debt does the private lending industry finance? How many deals run through it annually? What’s the average deal size? What’s its foreclosure rate? What kinds of properties are being financed? From the kinds of statistics that would help legislators make informed decisions to data that merely helps private lenders run a better business, industry data are lacking or nonexistent. At best, the industry looks disorganized and siloed. At worst—and considering its growing size—it makes the private lending profession appear shady and secretive. If private lenders wish government to view it as a bourgeoning powerhouse industry to be taken seriously and listened to, it must arm itself with the data its financial industry counterparts hold as standard.

nesses that make up its majority. The problem was never that it couldn’t win, but that it didn’t show up. Advocacy can and has worked. Now’s the time. ∞


KAT HUNGERFORD Kat Hungerford is business development manager

at Affinity Worldwide, a

family of companies with more than 50 operating

divisions spanning a broad

spectrum of industries. She specializes in operations,

project management and marketing. Hungerford

works with several real estate investing brands, including

the American Association of Private Lenders.

STEP UP NOW The private lending industry has numerous examples of where it could have earned major wins for the small busi-




Non-Bank Lenders Are Making a Big Splash Non-bank and private lenders are beginning to dominate the mortgage landscape. by Melissa Martorella


he aftermath of

the 2008 housing crisis shined a light on how

bank lenders tried to walk a

fine line funding and selling

mortgages. Rather than taking the traditional route of funding loans with bank deposits, many banks used lines of credits or so-called “warehouse lines” to borrow the money they were lending out on the mortgages, then turning over those closed loans on the secondary Wall Street market. 48


As we found out the hard way, these risky practices left many banks holding too much loan paper without the assets to back it up, ultimately leading to the demise of some of the nation’s largest financial institutions. The recession caused many banks to fail outright, and saw others broken up or consolidated with larger financial institutions. During the early years of the recovery, bank lending was tight and restrictive capital markets put the crunch on mortgage lending.

PRIVATE LENDING: THE PHOENIX Rising out of the ashes, was the private non-bank lending industry. Now, as the housing market has rebounded and is again going strong in most regions, non-bank lenders are quickly becoming the largest source of mortgage financing. Non-bank and private lenders are beginning to dominate the mortgage landscape. Although some analysts believe lenders such as Quicken Loans, Loan

Depot, Rocket Mortgage and others may not have engaged in the type of risky behavior that brought down major banks, they are still concerned about the consolidation of mortgage debt. If the economy changes and defaults rise, it is feared that some of these lenders may close their doors, further restricting consumers’ access to credit. Low-income and minority borrowers are especially vulnerable if these lenders fail. Another concern is the liability the government (i.e., taxpayers)

will have if some or a large chunk of loans fail. Michael Bright, executive vice president and chief operating officer of Ginnie Mae, addressed that concern in a Sept. 21, 2018, article in The Washington Post, saying: “We’ve never been in an environment where there were quite this many nonbanks … So, we need to take some additional measures, in my view, to prepare for an economic environment with either higher delinquencies or higher interest rates.”

TAKING MARKET SHARE As an indicator of the growth of non-bank lending, nearly half of all mortgages issued last year came from non-bank lenders. This number was up from 9 percent in 2009, and higher than non-banks’ market share before the financial crisis. Six of the 10 largest mortgage lenders are now non-bank lenders. The prevalence of private money lenders is also grow-

ing, as more borrowers turn to so-called “hard money” or private money, often seeking simpler qualification criteria, but willing to take higher fees and increased rates. Non-bank lenders are growing market share because traditional banks continue to back away from conventional mortgage markets. New regulations and banking oversight are making it more expensive for banks to underwrite residential mortgages. Instead, many concentrate on commercial finance and banking.

SHIFT IN MARKETING The constriction began right after the economic crash. Most national bank brands have stuck to financing borrowers with excellent credit and established assets, and they have continued shunning low-income or first-time borrowers. This reluctance to provide flexible financing is driving more borrowers to non-bank lenders who can offer a variety of financing options, flexible pricing and a lower loan to JANUARY/FEBRUARY 2019



“As long as they work to ensure they are not overleveraged and betting on risky borrowers, non-bank lending will continue to grow into the foreseeable future.”

values. Most non-banks are privately owned and, therefore, not subject to the rigorous oversight and capital scrutiny required of financial institutions under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

banks. They typically sell mortgages soon after closing.

It’s apparent that non-bank lenders are standing by their strategy of filling in where national banks fail, namely providing mortgages to borrowers who may have a tough time qualifying with a bank. Although non-bank lenders are just as vulnerable to a rise in rates, they do not leverage like

As a backstop, government agencies are helping non-bank lenders by purchasing and guaranteeing the loans if a borrower defaults. The Federal Housing Administration and Department of Veterans Affairs have been working to reduce the risk to lenders and bring down rates while opening doors for borrowers.

As long as they work to ensure they are not overleveraged and betting on risky borrowers, nonbank lending will continue to grow into the foreseeable future.


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WHERE THE RISK LIES As we saw during the housing crisis, rates rose and home prices dropped, leaving many homeowners upside down on their loans and leading to defaults. Another such market contraction could leave non-bank lenders vulnerable if they carry a majority of mortgages for at-risk borrowers. A downward trend in the real estate market could again lead to increased defaults and may cause smaller non-bank lenders to shutter. Taxpayers could be left paying the bills if some of the larger non-bank lenders fail. Government-owned entity Ginnie Mae buys mortgages from lenders and repackages them to sell to investors on Wall Street. The organization guarantees that investors will receive principal and interest payments, regardless of whether the borrower defaults. As more and more non-banks sell their loans to Ginnie Mae, the risk factor multiplies. Recently, the agency has been purchasing more loans from non-bank lenders, with a full 76 percent of acquired loans being originated by non-bank lenders. Ginnie Mae now holds more than $2 trillion in mortgage paper. However, supporters of non-bank lending say the lenders are monitored closely by states where they operate and by federal

watchdog agencies, such as the Consumer Financial Protection Bureau. Consumer safeguards and rigorous underwriting standards have stabilized the market, helping non-bank lenders continue to grow and offer products that borrowers can’t obtain from traditional banks. ∞


MELISSA MARTORELLA Martorella joined Geraci Law

Firm as an associate attorney in the banking and finance section in August 2015.

Martorella’s experience

includes representing lenders and brokers; preparing

commercial, residential and

construction loan documents;

as well as drafting assignments, extensions, modifications and subordination agreements. She also has experience

assisting with negotiating the

terms of transactions, drafting custom language and closing

loans. Martorella has prepared loan documents for transac-

tions all over the country and

adheres to the compliance of state-specific laws.





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HOUSING DIVERSIT Y CAN HELP THE MARKET WEATHER A COOL DOWN Here’s how to prepare for the next downturn. by Robert Greenberg

Although nobody can predict the exact timing, we will likely experience another market correction, and housing likely will be impacted. As the housing market begins to cool, high single-digit price gains probably won’t be in the cards for most communities in 2019. Still, much of the country will likely manage to show a healthy market in 2019. All players connected to the housing market—lenders, homebuyers, sellers and investors—will want to be well-prepared for what lies ahead. JANUARY/FEBRUARY 2019



Despite several headwinds such as higher interest rates, a slowdown in sales and moderating price growth, inventory is expected to remain low in 2019. The tightest inventory will be in the most affordable segment of the market.

suggests that communities with a greater variety in housing types and zoning have a better opportunity to weather economic downturns.


The study looked at housing diversity and its connection with foreclosures during the housing crisis, concluding that communities with more diversity in types of housing have lower foreclosure rates.

A recently published study from the University of Illinois

In general, communities that suffer from rising foreclosures seek to mitigate the effects

after the fact, through reactive rather than proactive policies. The nation witnessed this response on a large scale in the wake of the housing foreclosure crisis that began in 2007 in the subprime market and then spread and lingered for years. By 2009, multiple foreclosure prevention and loan modification programs had been put in place, which included the U.S. government’s Home Affordable Modification Program (HAMP) along with

private programs instituted by mortgage servicers. These programs, for households already in distress, included loan modifications, short sales and deeds in lieu. Principal reduction was even offered. The Illinois study looked at 14 metros and reviewed patterns down to the census track level. The researchers collected data from 2005-2013 on home foreclosures and sales rates that would indicate the extent of an area’s recovery

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Providing peace of mind for over 40 years

from the housing crisis. The researchers controlled for the common predictors of a foreclosure (at the census-tract level), including income and credit score, and factored those drivers into its analysis. The study concluded that because cities are responsible for their own fiscal health, they often seek to attract the higher-priced housing for property tax revenue. Yet, too much of just one type of housing can leave a city more exposed to foreclosures when the housing market turns downward. Building higher-priced units either forces people away or forces them into buying above their means. In the years leading to the subprime crisis, a variety of loan products allowed homeowners to get into mortgages they couldn’t afford. The assumption was that home values would continue to rise. But the assumption turned out to be a losing bet. During the housing crisis, many homeowners ended up in foreclosure, especially if they suffered a trigger event such as the loss of a job. Others ended up owing

more than their homes were worth and chose to walk away. A variety of housing options in various price ranges and housing types may help insulate the market from a similar fate in the next economic downturn. The author of the study noted: “What I’m finding in this study … from a housing stability perspective is you need to have not just housing diversity at the municipal scale, but it’s a good idea to have diversity at a smaller, neighborhood scale.”

SHOULD INVESTORS AND LENDERS CONSIDER DIVERSITY? Although the study didn’t specifically examine investment properties or lender activity, everyone impacted by housing, whether they are investors or city planners, can learn from the researchers, finding that diversity acts as an insulator in times of economic stress. Researchers also found that housing diversity can contribute to a community’s ability to quickly recover from an economic shock. From an investor standpoint, it makes sense to invest in neighborhoods that have attributes

that make it desirable. Certainly, that could potentially mean diversity of housing stock in a neighborhood. The study doesn’t suggest that every neighborhood needs apartments or condos or that a tiny house should be placed next to an extremely large one. Should a real estate investor have all of his or her properties in a single housing size or value type, or all in one neighborhood? And if they do, does that mean they are putting too much risk into one area? Many lenders are highly focused on concentration risk. They attempt to avoid lending too heavily against one price point and avoid making too many loans in one neighborhood or market. So, it only makes sense to also achieve some diversity in property types. To achieve a mix of housing that may help to keep property values high, investors would do well to look at a wide variety of tools. Those tools include planning and zoning regulations, fiscal regulations and favorable loan terms. Creating vibrant neighborhoods doesn’t happen overnight. Looking at a wide variety of causes and solutions may help make for a faster recovery when the next slowdown comes along. ∞


ROBERT GREENBERG Robert Greenberg is chief mar-

keting officer for Patch of Land. His professional experience

includes over 25 years in marketing, working with familiar consumer brands such as

Pepsi-Cola, Anheuser-Busch and Sara Lee as well as B2B

experience in retail, technology, finance and real estate.

Recently, he led the marketing efforts for B2R Finance, where

he helped originate more than

$1 billion of real estate investor loans that led to the industry’s

first-ever multi-borrower singlefamily rental securitization. At B2R, he was responsible for

branding, corporate commu-

nications, lead generation and integrated marketing efforts.

He was responsible for leading the development and implementation of the marketing

automation and CRM platform that helped to deliver sales

management and operational efficiencies to enhance the

customer experience for real estate investors nationwide.





04 Fourth, I need to stay thick-skinned

until the problem comes up repeatedly. If I get the same criticism over and over, then maybe there is some truth to it. Until then, I will not always allow words to penetrate. Pachyderms are animals like elephants and hippos. Broken down, the word is “pachy,” which means “thick,” and “derm,” which means “skin.” These animals are truly defined by their thick skin; as a leader, I need to be defined the same way.

by Eddie Wilson

One of the areas where I have failed repeatedly is dealing with criticism. I am not critical by nature, but I have been in leadership positions the past 19 years of my career. In those various positions, I have dealt with a fair amount of criticism. But the reality is this: Leaders have to make difficult choices. As an owner of multiple business, not all my decisions are always the best. I can admit that, as hard as it is. Even though I know I have made wrong decisions, sometimes it is very difficult to hear it from someone else, especially from clients or competitors. A few years back I wrote a process for myself on how I want to deal with criticism. Here are the steps I use to strive to deal with the negative:

01 T he first step is introspection.

Pausing for a moment after I have heard negative commentary, without responding to it immediately, always serves me well. Not all negative judgment towards me is false. Some of it



05 Fifth, I must protect myself digitally. has roots in truth. I believe that as a leader it is necessary to first ask the question: “Is it true? And if it is, am I willing to change it?” In answering that question, you can find the correct footing from there forward.

02 T he second step I take is to ask

whether I could have changed anything. I know that sometimes when making difficult choices like laying off staff, the choice is inevitable. The negative comments come, but leadership has strong enough shoulders not to retaliate or to give an answer where one is not needed. In a recent article on the same topic at www.inc.com, the writer states that emotionally intelligent people do not always justify themselves. In certain situations, silence is the best answer.

03 T he third step is to stay on offense. Typically, a defensive position is one of weakness. I cannot be reactive. I must choose in every situation to absorb the situation and then choose a practical answer. Reactive words are often just gasoline to an open flame.

When I am criticized, often the personal sting is the least painful. Digital criticism is the worst kind, because it can live on forever on the internet. Make sure to have a robust digital media presence for the purpose of reputation management. I need to either be non-existent online and avoid it altogether or jump in with both feet. People who are harmed the most are those who have a digital presence that is average.

06 L astly, keep my enemies close. The

first thing I often do when I am criticized is distance myself from the source. This is least effective, because it shows weakness and guilt. I should embrace those who disagree and choose open dialogue with them. Ask: Why do you feel that way? or Have you always felt that way about me? My personal favorite is to ask: What could I have done better, in your opinion?” Questions like these diffuse our scoffers and also show a level of confidence to onlookers.

I hope this strategy helps. It is something that I strive to follow better in my own life. Criticism can make us or break us, but ultimately it is our choice how we respond. ∞







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