Residential business-purpose loan rates drop in face of investor demand

Residential business-purpose loan rates drop in face of investor demand

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Residential mortgage rates have hovered more than a quarter-point above record lows in recent weeks but it’s a different story if the borrower is an investor. For them, costs are falling.

The latest sign that financing business-purpose residential purchases is getting cheaper came as lender and bond issuer Temple View Capital today announced deep rate reductions across its major product lines, according to an announcement sent to prospective real estate investors.

Among the price drops, Temple View cut rates on fix & flip loans to as low as 6.5%, a full point lower than advertised rates in late April, according to company notices. It reduced its minimum rate on longer term loans meant for borrowers who will rent the property to 3.875% from 4.25% in mid-May, and even lowered the starting rate on its ground up construction loans to 6.5% from the 8% advertised when expanding its presence in the sector last week.

The improved borrowing conditions are coming amid signs that competition for the assets continues to rise due to the search for yield and favorable tailwinds for consumers and the US housing market. Under those conditions, the private lending industry is looking like its former self, before the pandemic, said Kevin Kim, a partner with Geraci LLP’s corporate and securities group.

“I think it’s just the fact that the market is back to where it was from a feel and comfort standpoint,” Kim said. “That’s what’s driving rates down.”

There’s also an increased thirst for fix & flip and other business purposes loans. Mortgage REITs New York Mortgage Trust, Chimera Investment Corp and MFA Financial have each underscored a greater affinity for the loans with average rates well above 7%. Redwood Trust last month secured more access to fix & flip loans with an equity investment in loan aggregator, Churchill Finance.

“You’ve seen a lot of capital just come into the space,” said Dashiell Robinson, Redwood Trust’s president, at the 2021 Virtual KBW Real Estate Finance & Technology conference on Thursday (27 May). “It’s a very attractive place to invest. Investing in rental housing stock is a very attractive inflation hedge (and) performance has been really, really strong.”
But as one lender sees it, “there’s way more capital wanting that product than there is product.”

Lowering rates is one way to generate that product, the lender said. Borrowers may need cheaper borrowing costs to maintain their demand for credit, too, he said.

Indeed, finding profitable renovation projects has become difficult over the past year as prospective homeowners amped up their bids for single-family houses during the pandemic, even homes in need of significant work, said an aggregator of the loans.

Home flipping profits are still strong but slipped in 2020 for the third year in a row, according to ATTOM Data Solutions.

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