Private Lending Deep Data Dive – Markets & Market Share

Nema Daghbandan:

Welcome everybody. Thank you for coming to this webinar. Very, very, very excited about this one. As many of you know, I love data. I am a data geek. I have been working with Forecasa, a shameless plug to the great team there. We are a customer of Forecasa. We probably have to disclose that legally anyways, but I'm a customer because I love the product and I have been really excited about this webinar because I love data. I love our industry being the private lending industry and it's for the longest time been an extremely opaque industry. And so Sean and I really have been wanting to present both of the, bring some light and some clarity into a very opaque industry. And we'll go into the data sets and all that good stuff. But thank you for joining us today. By way of background, for those that don't know who I am, my name is Nema Daghbandan. I'm the CEO of Lightning Docs. I'm also a partner with Geraci LLP, which is probably how many of you know me and Lightning Docs. We'll go into greater detail in a minute here, but is the software offering that generates business purpose loan documents for private lenders. So whenever we represent or present data for Lightning Docs, that's what we'll be talking about. And I also have the great privilege of having Sean Morgan here with Forecasa. Sean, want to tell us a little bit about yourself and the company?

Sean Morgan:

Yeah, thanks Nema, and welcome everybody. My name's Sean Morgan, CEO Forecasa. We are a analytics company specializing in private lending and business purpose loans. We work today with a lot of private lenders as well as a lot of the private lending community like Nema and Geraci. So I'm very excited to be here today. I think we have a lot of great data that we're going to be able to share with you. And like Nema said, this industry sometimes either over inflates or under inflates numbers based off your interest level. But today we're going to kind of show you the source of truth here. So really excited and thank you to the Geraci team and Lightning Docs for having me join today.

Nema Daghbandan:

And then from an administrative standpoint, because we will always get hit with these questions and want to make sure we cover them now, which is you'll want to know is do I get a copy of this recording? And the answer is yes for signing up today. We will deliver this recording after the fact so you can disseminate that and share it with anyone you want. The second question we always get is will I get a copy of these slides? And the answer is yes. You'll also get a copy of the slides with the recording. I think you'll find them fascinating and want to spend probably a good amount of time with them after the fact based on the content that we're covering in there. And then the last question that we will get is how do I ask questions? There's a q and a box at the bottom of your screen.

Please use the q and a box. Please don't use the chat box. It is very hard to monitor the chat box, but we'll happily be answering questions in the q and a box and we'll even try to answer those in real time to the degree that we can. But please use that if you want to try to communicate with us at all during the webinar. So without further ado, the other big announcement is for those that don't know, we'll be having our Captivate conference coming up in August. That's at the Encore Hotel. It's a phenomenal event. You'll have typically about 500 private lenders and vendors and the whole consortium of the industry showing up to it. It's our flagship event. And so if you want to find out more details about how to attend or sponsor, go to geracicon.com. But make sure you do that sooner than later. I think the room block probably is already sold out or close to being sold out at this point and the later you wait the more painful and expensive they make it for you all. So make sure you do check that out if you're planning on attending and hope to see you there, please say hi to me if you are there.

So what is the content of today is we're going to talk both at the national level briefly and kind of discuss national trends that Sean and I are seeing in terms of average loan amounts, volumes, all that kind of stuff. And then we're going to get down to the state level and we're going to target specifically the top 10 states in which we're seeing activities and really drill down on those and get down to the county level with some specificity in terms of the activities that we're seeing both in volumes and interest rates and really down at that micro data level. And so that's going to be our primary discussion for today.

So first a little bit about the Lightning Docs dataset. So Lightning Docs as we kind of talked about a second ago, is it's a software solution that lets lenders generate business purpose loan documents autonomously. So they answer a series of questions online and then it generates a set of business purpose loan documents. It generates both what Sean and I'll refer to as short-term loans because you guys will probably refer to 'em as fix and flip and ground up and RTL and bridge and 10 different terms. And it's very hard because people don't have consistent meanings to those terms. So we'll just for easy purposes, usually when we're segregating out our data, we're looking at things that are short duration. So typically three years or less, more often than not it's probably about 12 months is kind of the magical number in terms of duration. But short-term loans, typically interest only loans may have a construction component, may not, but you've got your short-term duration loans and then you have your DSCR your term loans, which are 30 year loans.

So those are really the two worlds in which we live in and obviously want to analyze that data very differently because they're very different loan products. We don't co-mingle those products even though the same lender, the private lenders will offer both types of products. When we're looking at just Lightning Docs data, we've got a little over 65,000 total transactions since our inception back in 2018. It's a little bit over 34 billion in total originations and it's about one and a half billion per month in originations and about 3000 loans per month right now in origination split between both short-term and long-term loans. So those are the loans we're going to analyze when I'm presenting things to you such as what are the average interest rates, what are the average loan amounts, those sorts of things. They're coming from this data set in terms of representation of private lenders.

So if you looked at the top 50 lenders and the way you figure out who are the top 50 lenders is you subscribe to Forecasa's data and figure it out from a market share perspective, who are these people? If you looked at the top 50 lenders nationally, 26 of them use Lightning Docs. And so that's kind to give you an idea of it's a pretty commonly used and it's a pretty representative data set. Sean and I prior to the call were actually discussing how interesting it was that we were coming to very similar conclusions both in terms of volume increases and average loan amounts and those sorts of things. So it's a pretty representative data set of the private lending industry. And the last thing to note on here is they're the official loan documents of the American Association of Private Lenders. So first thing is now when we're looking at the Lightning Docs data set and what we're tracking is on a national basis, so I'm looking across those short-term loans for example, in the month of June, we're looking at a data set of about 1700 loans for those short-term loans.

And over all of those loans, I am seeing these average interest rates right here. So we're ending in June at 11.21% national average on the interest rates. And I'm seeing on the average of the loan amount of $458,000, a little bit of a qualification in terms of the average loan amount. I intentionally exclude loans less than $50,000 and loans greater than $2 million because oftentimes we can have a user who generates a very, very large loan and it'll heavily skew the data. So to try to create some consistency out of it, we do intentionally remove certain data points to try to create a little bit of smoothness of the flow, but we're seeing kind of a monthly average between 450 and 500 is what we're seeing from the Lightning Docs users. And we're seeing interest rates that were a little bit higher towards the beginning of the year and are starting to move down, which is kind of interesting is that it's a little bit of an inverse of what you're kind of seeing in the conventional mortgage market is it did a little bit different than what we did.

But the more and more you actually look at the conventional mortgage market rates and the short-term duration loan rates, they tend to not have any influence over each other, which is becoming very interesting other than if they start going down dramatically, they'll probably both go down dramatically together. And similarly, if they're both going to go up dramatically, they're probably going to go up a little bit together, but they don't tend to look at each other in terms of adjusting in real time. And so we are going slightly down and you'll also see that in the monthly data sets that we'll start providing over here.

So looking just at the month of June, we also try to segment, so I just told you that we have a national average of 11.21%. You at the origination desk are probably trying to figure out from there. Well, but hey, my loan originators are telling me that they're seeing a bunch of loans and the nine percents or the 10%, where are most of these loans? So we segmented them out by percentages. The way to understand this pie chart is that if the promissory note in the interest rate identifies a number point something, right? So in this example, loans that are between 10.0% and 10.9999999% represent 37% of the loans that were generated in June for the short-term loans. And same thing as 11 to 11.99999 represent 26% of the loans by market share here. And so there are some loans for sure that are less than 10.0%, but it's less than 10% of the total loan volumes right across 1700 loans is what we were looking at. So approximately 170 of those loans came in under 10%, but by market share 81% of the loans had something between a 10.00% and a 12.99% for the interest rate identified in the loan documents.

Looking at where is the activity occurring. And so we're going to go into a deep dive on most of these states here is where are we seeing short-term volume and how has that changed over time? When we're looking at it, the top three states have remained the top of three states and in that order, California, Florida and Texas with some movement outside of them for 2024, but generally fairly consistent in terms of where is the volume. And we're going to look at most of these states in a lot of granular detail where we'll discuss both what are you seeing in terms of average loan amounts by county average interest rates, but also who are the dominant private lenders who has market share, who are the top 10 lenders in that market and how is that changing? And Sean, why don't you take this one?

Sean Morgan:

Yeah, thank you Nema. And just as background Forecasa is pulling from a different dataset, so we have thousands of data sources that we're pulling from and we're working with public data sets. So as opposed to lightning docs who's pulling data from their customer data, we are looking at a national data set of all lenders. So we're looking at 97.5% of all mortgages originated in the us Just to give you some round numbers, in Q2 there were 45,000 private loans. June is not fully complete yet just because there is a natural lag with the county recorder's office and that lag does vary state to state. Some states are very quick, they'll get their stuff recorded within a week. Other states like I'm from Philadelphia, they're not the quickest, right? New Jersey also not the quickest to get their data updated, but as soon as it's being recorded, we're pulling that data in.

So there will be some changes when you're looking at the Q2 numbers, just I know a lot of lenders sometimes want to reconcile back to the numbers, just know that everybody's on the same playing field. So as we go through this data, just know that this data is Q2, but there may be some adjustments in June as the data rounds out over the next couple of weeks. When we look at that data, there's 1.5 million total loans. So the private lending industry today represents right around 3% of all the activity, which is up over the last call it 24 months relative to the conventional space. So we'll talk a little bit more about that in the future slides, but just to give you an idea, private lending right now represents about 3%, but is growing as the regional banks and some of the commercial banks pull back and the private lenders step in to fill that void.

And just to use terminology, we're looking at growing markets versus contracting markets and when we say growing or contracting, that is Q2 over Q1. So we're looking at a six month time horizon. Any of the growing markets are going to have greater than 20% growth over that time horizon. And then the contracting markets will all have over 19% contraction, which was a little shocking to me. The California has really bounced back San Diego being one of the biggest, I think there was over a 50% increase this quarter over the Q1. Some of that may be a little bit of seasonality, but you could see of the top 10 markets we're looking at, five of them are coming from California with San Rosa, Stockton, Anaheim, San Bernardino, and then also we have a couple of interesting markets like Huntsville, Alabama. I'm sure nobody would've guessed that that market is growing in the way that it is and these are all stack ranks.

So the number one market's going to be the biggest growth and the number 10th is going to be the lowest growth. But again, all of these will have plus 20% growth in quarter over quarter, which is pretty significant. Even Cincinnati falls in there, the Ohio markets have been pretty strong. On the flip side of that, you see New Jersey, Florida, New York and Tennessee. That's really where some of the markets have been contracting specifically in violin, Hilton Head, Spartanburg, South Carolina, and then you could see the rest of the markets there. And Memphis, as a lot of my customers will tell me, you have to really split Tennessee into two segments. Western Tennessee and eastern Tennessee. Eastern Tennessee outside of Chattanooga still seems to be growing fairly strong, but Memphis has contracted a good bit and it's a pretty localized market there in Memphis as well. If you want a full list of all the markets, every MSA that we cover, you can reach out to our team and we can kind of walk you through our platform so that you can get real time analysis on this data.

Nema Daghbandan:

And I will affirm Sean on this one as well, which is San Diego is a lightning hot market. There's lots of articles for those that dunno. Our offices are in Orange County, California, and so San Diego has a very, very high margin for fix and flippers in terms of their profit margins and so it's attracted an enormous amount of development activity.

Sean Morgan:

What did, wouldn't mind going to Colorado Springs as well this time of year.

Nema Daghbandan:

Yeah, that's right. And we've got a question on this particular slide, which is on slide eight. Does this refer to the number of loans, dollar amount of loans or some of the metrics and it's the number of loans, is that right?

Sean Morgan:

Correct. The number of private loans originated during that time period. We also will look at this by volume, but for the purposes of this, this is going to be done by actual loan count. Alright, and then the private lending mortgage, as we talked about this a little bit before, we have data through June which will show on some of the specific markets, but for the purposes of just high level overview, we kind of capped the data at may just to make sure we're looking at a full dataset, don't want to negatively impact the analysis by including June, which is not complete yet. But what Neem and I were talking ahead of time here is that we constantly get questions, is the market growing? Is the market shrinking? What's going on here? And what you're going to be able to see is that it is growing right?

May was actually up a nice percentage at a point, but you can see here it's not just one area of the country. The west being mostly California and Washington and Arizona had a nice growth there, 25% at the height, whereas the Northeast, which is a little bit more resilient, doesn't have a ton of peaks and valleys is going to have the lowest percentage change at 10%. But you can see here private lending origination is now only down 26% since the peak in March, 2022. That got down almost close to 50 to 55% at the lowest point, whereas conventional loan origination volume is still down 48% relative to the peak, which is why you're seeing a lot of these conventional lenders now get into some of the DSCR space to make up for lost volumes. And another interesting stat, 53% of all business purpose loans are now being originated by private non-bank lenders.

And if you look back at that statistic back in 2022, it was as low as 40%, 60% of the loans in 2022 were being done. Business purpose loans were being done by banks and credit unions. That has now flipped and we expect that to continue. One of the recent stats I heard from a conference was that the regional banks because of regulatory reasons and just overall market conditions are really pulling back from some of the business purpose lending, which allows the private lenders to kind of grow their overall market share without having to actually grow total volume. It's just a bigger slice of the pie that they're getting. But again, we did CMA that the pie is getting bigger as well, not just a reallocation of originators.

Nema Daghbandan:

And that's definitely a point Sean and I were discussing prior to this, which is really the, I think the sentiment oftentimes when you attend conferences or otherwise is Oh, well it's really just a shifting of market share between originators versus a growth overall. And the data on both of our sides bears out that no, there's in fact a meaningful growth year over year that's occurring across the same private lenders. And it's not to say that there isn't a change in market share between originators that also can be true, but overall the aggregate market is in fact increasing year over year and both of our data sets are now showing this

Sean Morgan:

May was up 25% since November, 2023 and we expect June to come right in line with May maybe not increasing again, but it's going to be right in line with the May numbers and confirm that with a couple of our customers who were having record setting months. So hopefully everybody else out there is experiencing that. Okay, this is something new that we're pretty excited to launch here. We're also now segmenting, this is one of the biggest questions we get outside of interest rates, which I tell 'em, Hey, just go talk to Nema at Lightning Docs because interest rates are not something that's going to be on the recorded documents that we're looking at. There will be some interest rate data there, but it's very minimal and if a data provider is telling you they have interest rates, it's most likely modeled data and it's modeled based off conventional interest rates, which is not something you're going to be able to use for the private lending space like Nema mentioned earlier, right?

There is a correlation as interest rates go down for conventional, they'll probably go down for private, but it's not a one-to-one correlation, so you really have to pay attention to what the market's doing and it can change overnight as Nema probably knows, the interest rate movements are really driven by the underlying investors in these loans, and there's a huge difference right now between long-term loans, DSCR versus a short-term RTL. There's been a lot of long-term investors that have entered the market recently that have an appetite for taking on these longer term loans in a higher interest rate market. And the short-term loans have always seemed to be pretty resilient from an investor base just because of the nature of how short those terms are. So even if interest rates move, you're still not going to be locked into a loan that could take five to seven years to mature like you are going to see with DSER loans. What we're also seeing is we're seeing an increase in short term loans. So the short term started out 44% all the way up to now 58% of the volume. However, that being said, we have seen a lot of lenders who did not offer long-term loans before. They're either now working with partners to originate and sell or they're now offering DSCR loans themselves. So it's a different product, totally different use case, but there are now more players in that space in an aggregate,

Nema Daghbandan:

And we're similarly seeing almost an identical breakdown within Lightning Docs of the mix of short-term loans and long-term loans.

Sean Morgan:

Again, this is just going to look at the average loan size, which I think makes sense. 2022 is the height of housing prices, so you're going to see that those amounts are going to be at the highest. And then this year we have seen some pullback, some of that is leverage, so for the longer term loans, folks are not necessarily doing a hundred percent leverage or 95% leverage. So I think the smaller, longer term loans is a factor of a little bit of decrease in housing prices combined with less leverage being put out to the market, whereas the shorter term loans are still staying pretty flat from 2022.

Nema Daghbandan:

And then we'll get down to the individual marketplaces right now. And so the first state that we're going to highlight here is California. You'll see from every state slide it's all going to look pretty similar, which is that we're going to represent the data for the last three months. You'll always find three columns for each month, which is what was the average interest rate for loans in that county, what was the average loan size for loans in that county? And then last, what is the number of loans we were looking at to do the analysis for those averages to give you some statistical relevancy behind the information you're seeing. So obviously if you're LA County getting pretty good statistical relevancy, which is at least 100 loans per month to arrive at those figures, so chances are that the loans, you're getting a pretty good amount of data to do it versus Fresno County, it's eight loans.

It's better than no loans, but it's a different weight and relevancy for purposes of understanding. Probably the most important thing when looking at a slide like this is really understanding the market that you are competing in and how volatile that market is. And so you'll see counties like Los Angeles, which are not particularly volatile markets, kind of follows the national trend, which is interest rates are going down a little bit, so 10 basis points or so per month, but then you have really highly volatile markets. So you can just look at Orange County for example, which is you could have been really on the wrong end of origination either because your pricing your loans too high or too low, and you probably felt that pain, right? You were sub 11% in April, but then when you go to June you were above 11.5% and so there's a 75 basis point hike between those two months and you'll see a lot of that activity, which is there in every market that we look at.

You'll just find that some tend to be low volatility and some tend to be high volatility and they kind of consistently stay the same. From my experience, which is Orange County has remained a pretty highly volatile market. Even when you stretch this out to March, February and January, as you'll see this kind of jumping all across the board and Los Angeles just never is. It's a really kind of a steady market, which makes sense if you look at the competition in Los Angeles just by looking at Lightning Docs users alone, there are 77 different users making loans in Los Angeles County alone. So it's a highly competitive market and it makes sense that there's probably more of a consistent pricing that comes from the markets like that versus a Fresno or these tertiary markets in which it's going to be so much more driven at that individual risk level of an originator and those sorts of factors rather than significant external market forces and particularly national market forces trying to play in that market and creating some consistency in pricing.

Another kind of interesting fact, we look at California, I think people are often surprised. They will think as, oh, well California, you guys are awful. The interest rates are so low, everyone's fleeing the state, yada, yada, yada. Insert previous preconceived bias of California, and most of those are untrue. First is just look at Los Angeles for example. I just presented a few slides ago that the national average was 11.21%. If you were lending in Los Angeles alone in June, you were above the national averages. And you'll see this play out in other places where your texases, which we'll get to in a minute are actually far lower than most of the counties in California. And so you're actually on the wrong side of history as it pertains to average interest rates and these sorts of things. So I would be very careful with biases, big broad stroke biases about the way you think markets actually manifest because there's no problem.

California remains the number one market by leaps and bounds. You'll also see this in Sean's market share data as well. When you just look at the number of transactions, this is still the hottest and by leaps and bounds, one of the slides I think we'll cover is Georgia, and I think it's nine times the volume of Georgia as an example. So just to give you an idea of the scope and size of it. So definitely don't discount California, but it is also really important to know that California is not a monolith in any way. So I don't present, and I used to present a lot of times on state averages, which might be fine enough for some states that are very small. It is useless piece of information for California because you could probably, if you really wanted to segment California, you would segment Northern California and Southern California.

That's really probably the better understanding of an MSA for our perspective because in northern California, you're Santa Clara's, those you're seeing sub 11% and by pretty significant margins. And so whereas your Southern Californias, your San Diego, your orange counties, you tend to be getting these higher interest. You're selling California metros, right? And San Bernardino is kind of all over the place, but that's a tertiary to the Orange County, LA Metro, right? Which makes sense. You probably want a little bit more aggressive yield if you're going to be in a tertiary market when you could have been making the loan in Orange County or Los Angeles County.

Sean Morgan:

And one of the things that did Nina's point as well, some of the areas that we're going to look at have a higher bank concentration still. So although the regional banks are pulling back, private lending has been originated in California for a while. It was one of the first areas with all the foreclosures that came out that private lenders were able to step in versus if you go to places like Georgia, like Texas, even Boston for that matter, you still have a lot of local regional banks that are willing to do business purpose loans because they understand the assets really well versus other markets where private lenders are just highly competitively California, Florida. And now Texas is starting to become that way as well with the influx of lenders. But you really have to factor that in because if you look at it on a national basis, the top 10 lenders in private lending make up 26% of all the originations, which is pretty consistent.

And what we see is that number hasn't changed much. It might fluctuate down to 24%, up to 27% we would expect. I come from the oil and gas space when things typically get negative, the big get bigger. In this case the top 10 are typically growing, but at a rate that we would've expected. And there's been not nearly as much consolidation as we might've thought in the market as well. There was a couple of things that happened in the market, but not nearly as enough consolidation that we've seen in the market. There's going to be a consistent trend in here. Chibi again, this is by number of loans. So if we did it by dollar amount, this would change a bit because Chibi does typically do some smaller loans than some of the other players out there, especially compared to Anchor and Center Street and Easy Street and Genesis who are doing bigger deals. But what you're going to be able to see in California is that five out of the top 10 lenders are growing market share in Q2 merchants and First Bridge are the lenders with the fastest growing or the highest growing amounts in Q2, and then Velocity just fell out of the top 10, but they're growing at a nice clip as well as Stonecrest and REO are two lenders that are in the top 20 that didn't make it in the top 10 but have had significant growth in Q2 over Q1.

Nema Daghbandan:

And so the next state we're going to cover here is Florida. So similar to California, tons of activity all across the state. You'll see in the upcoming slide that it tends to really only be one or two primary markets where activity is really occurring, but that's not the case. You'll see in Florida and California and similarly as you'll see that there are some counties that are not particularly volatile and fairly limited movement. And then counties where you really have to have a pulse on what is happening and really be reactive more to the market. So for example, Lee County's fairly static. You've got basically through a period of three months within a 40 basis point spread versus something like a Deval County where you had pretty big jumps, almost a full hundred basis points between the months and you really needed to know what was your competitor, what were your competitors during the same exact time period. And similar to as average loan amounts obviously are going to vary pretty broadly based on the market that you're in. Polk, for example, is clearly a market with smaller dollar balance loans, Miami-Dade obviously is going to be your largest, which makes sense from a property valuation perspective.

Sean Morgan:

Yeah, Florida Duval County is a pretty interesting county because Jacksonville is an interesting city. The prices of homes just seem to vary dramatically, and if you've ever been there, you would understand why. But yeah, Florida is an interesting market in total because you will see there are some Florida based lenders, but you also have a lot of New Jersey, New York lenders that also kind of feel comfortable lending in Florida. So you'll have a northeast presence in the Florida market as well. Again, you're going to see Avi, this is one of their stronger markets with over 10% market share. But then you have folks like Equity Lending Solutions, which is a smaller regional player but really knows their market really well. Same thing with RBI lending in Florida. Six out of the top 10 are growing market share in Q2 with Avi and Easy Street being the top growers in Q2 for Florida.

Nema Daghbandan:

And then next here is Texas. And the point I made earlier is we have a national average in June of 11.21% every single county in June registered below 11.21% in the state. And so really demonstrates the point that the averages are not what you think they are across the country and you want to make better informed data decisions as it pertains to pricing. And you probably don't want to have a single standalone, particularly if you're going to be lending across multiple markets, a singular based pricing system probably isn't going to work well for you because you will need to know the local market dynamics better than that.

Sean Morgan:

And just to touch on Nemo's point there, everyone expects in Texas that Austin is the biggest area where all the development's going on. And that's true, there is still a lot of development going on, but the Dallas-Fort Worth market is one of the strongest and most resilient markets and it's growing right? Every time I look, there's another area that's expanding north of Dallas or west of Dallas. So although Austin has been growing from a pricing standpoint, the activity volumes really in the Dallas Worth market have been extremely strong. Houston has pulled back a bit and San Antonio is a totally different market than the rest of the markets there. But I would say if you're looking for a market to enter into Texas and you want to just get an understanding of what's going on, start in Dallas Fort Worth area and then see whether or not it's worth entering some of these other markets that may have a bigger appetite.

And in here, cap Fund one is an Arizona based lender that has taken over as the number one lender in Texas. So they're doing a great job grabbing market share and expanding. They went from one market to the next and did a really good job of understanding the markets before taking a deep dive, but they beat out some local players like Searchers and Boomerang Longhorn in Texas, five out of the top 10 are growing market share. Lone Ranger has been the fastest growing in Q2, so you see them pop up really nice. Another, again, Austin based lender that knows the market really well. And outside of the top 10, we have Texas Real Estate Fund as the fastest grower in the top 20. So just a little bit of information for you on the Texas market. And again, Texas market has a lot of banks that are still active in this space. So a lot of clients that we're talking to now, sometimes in other markets, they may only want to focus on borrowers that are working with private lenders, whereas in Texas I do see a lot of private lenders that are pulling market share away from the regional banks as they pull back.

Nema Daghbandan:

Texas is also extremely unique, and you'll see this from the list, it tends to be a very insulated market from the others in terms of market share as well is most other markets you kind of see the national players and some consistency in that result, but Texas really does have a unique set of Texas lenders typically that really understand and know that market well. They've done a good job of creating a protective moat around their business there. The next state here is Georgia and kind of goes back into, you start seeing this pretty consistently as not a just less activity, which makes sense, much smaller state and then B, not where the activity occurs is really kind of isolated in smaller areas. And so Fulton into Cobra actually right next to each other from a county perspective. So a pretty small metro in which activity is going to be occurring. And you're seeing fairly consistent results, at least as it pertains to not a ton of rate volatility in either county, but they are different from one another. So it's always interesting that they are neighboring counties, but if you were in Deca, you're getting almost 80 basis points higher in May than you would have in Fulton even though you're maybe 10 minutes down the street. So kind interesting to see the way that it manifests there.

Sean Morgan:

And Georgia is one of those markets that the investors really like. They really like the Southeast. So Georgia, South Carolina, North Carolina, those markets are constantly markets. We get questions about growth, but then I think to Nina's point, some people are a little surprised about the size of the overall private lending space in those markets. So I think there's still a lot of work to be done to carve out the private lending space there away from some of those banks that we talked about in here. No surprise, again, Avi, this is one of their strongest markets, but there's actually nine out of 10 are growing their market share in Georgia. So the bigger lenders are doing a great job of eating everybody else's lunch here. And I would say the Lima one, easy Street and Oaktree are the three lenders that have grown their market share of the highest in Q2, and we expect some of those trends to continue.

Nema Daghbandan:

And next state here is Illinois, and it's just as you can imagine, only one county, Chicago Metro basically is where the action is. Not a ton of rate volatility, but a good amount of transactions and decent size transactions in terms of dollar amounts. There's some volatility in terms of that, the average transaction size, but fairly consistent market and generally a little bit above market average returns,

Sean Morgan:

I would consider Illinois to kind of similar to that Northeast group where you're not going to see huge swings one way or another. It's a pretty steady market, so you're not going to see huge pullback or huge increase. It's going to be kind of steady Eddie growth, and it really depends on where you're at in the city to see where that development's coming from here, you're going to be able to see that rock just out wedged Renovo for the top here. But Renovo and Velocity are two of the fastest growing in Q2. One of the lenders that's not on this list is Direct Mortgage Investment Inc. Investors Inc. That's the fastest growing lender in the top 20 on a small basis. But again, trying to grow their book in this market.

Nema Daghbandan:

And now we're looking at North Carolina, not a ton of activity occurring in there, at least across the Lightning Docs users, but right there, 10 basis points below national average in June. And a dear friend, Avi, again, I see

Sean Morgan:

Avi, this has always been a strong market for them. They've actually pulled back a bit. This used to be a market where they had over 12, 13% market share. So they've pulled back a bit and who's winning? It's going to be Lima One, Visio and I fund, right? So those are three lenders that have the highest growth in Q2. Bell Rock Finance is a local lender that plays in that space. They've always been pretty consistent with their markets. And then the top player in the top 20 is Oakwood Lending has the highest growth in Q2 relative to their peers in the top 20 of the lenders that we're looking at.

Nema Daghbandan:

The next state we've got here is New Jersey and New Jersey. Every time I present on New Jersey, I have the same commentary to make about New Jersey, which is how on earth did we get here? How do we have a state in which you got horrendous foreclosure timelines and just an extremely difficult regulatory climate. You've got broker license, you've got everything against you there, and somehow they miraculously pull off all of that and come in 60 basis points below the market where you're getting terrible yield on top of that. So for those of you that really just love New Jersey, God bless you, I will not understand it. I will never understand it, but here we are.

Sean Morgan:

Hopefully my wife's not listening, she's from New Jersey and I always give her crap about that. But New Jersey, the shore is great and it's a very segmented market. So I joke around all the time that there is no central Jersey. It's either North Jersey where they kind of monitor where you're from, by which exit you are off the turnpike. And then you have South Jersey, which is a lot of Philadelphia folks. So there's typically a lot of New York folks that are moving into North Jersey and they have a lot of Philadelphia people moving into the South Jersey market. That being said, this market is dominated by a lot of local lenders. So again, you'll see Rock Rock is based out in New York, a lot of the New Jersey lenders also lend in New York, which again, the foreclosure laws are tough in those states, but I think they want to be experts in that space. I even know a lot of Pennsylvania based lenders that won't want to go into New Jersey unless it's a specific borrower that they really want to keep. So the New Jersey market here you could see has been fairly consistent. Again, Avi's number two, but it's one of the states that they don't have over 10% market share. Again, new York's the same thing. Chive is not as big in New York, so they probably are staying away for a reason. You have Lending One and Renovo are this the fastest growing in the top 10. And then First Equity and Lendmark are two lenders in the top 20 that also have high growth in that market.

Nema Daghbandan:

And then Massachusetts definitely becoming a more competitive market and a market with a lot of activity going on in it. We're seeing, and it's also an interesting market, which is that where the loans are occurring in the state, you tend to get really high balance loans and above market returns, which makes sense why it is such an attractive market to be in. But it's interesting that people have generally shied away from it to a great degree even though it's produced pretty significant results for the people that can compete there.

Sean Morgan:

And one of the things you'll see here is the top 10 lenders do have a pretty stronghold on this market. So if you look at the percentage of market share there, just the top four or over 20% and include the next, you're going to be up close to the 30 40% of the markets dominated by the top 10 lenders relative to that 26% national average. I did want to call out, there's six out of the top 10 lenders are growing. You have RF, Boston and First Boston that are two local lenders that have been growing market share significantly in Q2. And then you also have H one H two capital as well as CV three, which are in the top 20 and have very significant growth in Q2. One other thing to note, Cardinal Capital and First Boston have much higher loan balances. So if we did this by dollar amount, the results would shake out a little bit differently. Cardinal's average loan volume I think is up close to 2 million. Same thing with First Boston. So really does depend on where you're at in the Massachusetts market. The more west you go, the lower the amounts are. But the East is very highly concentrated and what I've learned from talking to our lenders is that there's also a handful of counties in New Hampshire that would kind of fall into that Boston market as well.

Nema Daghbandan:

And then our next market here is Ohio. So Ohio you're getting typically lower balance loans, so smaller amounts, but you tend to be pretty above market in rates of return. And so this is a very active market, particularly on the DSCR side. Obviously right here we're just looking on the short term side of it, but getting close to 12% on average in June, but in that smaller balance in terms of loan amount.

Sean Morgan:

Cool. And again, no surprise Avi here because of those lower dollar amounts on their loans, they're really eating market share here. This kind of falls into their sweet spot of where they're comfortable with loan amounts, so you won't see them go up over a million, million plus sometimes in specific markets, especially in the urban areas. So this market kind of lends well to the QBI structure. That being said, QBI lending as well as velocity are the three fastest growers in Q2. And there's an interesting market here. If you're in Ohio, you're typically in Kentucky as well. So a lot of these lenders kind of play on both sides of the state line there. The other thing I would call out is that in the top 20 have sharper capital as the highest growth rate in Q2, followed by flip loan, which is again another local lender as well as Renovo.

Nema Daghbandan:

And that is all for today. I've been monitoring the Q and a box. If anybody does have any questions they would like to ask this time, feel free to drop 'em in that Q and a box. We'll wait a hot minute for that to occur. And just a friendly reminder is you'll all be getting a copy the presentation today. It'll be delivered to your email shortly here. And if we don't get any questions in the next few seconds here, we'll also be able to dismiss you all. Sean and my emails are at this slide as well, so if you have any questions, feel free to email us. A question that came through right now is do you track points? We do. We track points. I like to joke about this when I haven't looked at the data in a little bit, but when I have looked at it, people are always like, well, that's great.

I know what the interest rate is, but the points, that's really what you're seeing the variability. And the answer to that is you're not for RTL for short-term loans. The national average is 1.5% when you look at it. And that's the median when you look at it in terms of, hey, what is the actual, what are they putting there for points? When you throw in other things like processing fees and those sorts of things, it tends to trend closer to 1.76% on a national average for the short-term loans. When you do that for the DSCR loans, the median there is two points and you tend to see a closer to about two and quarter in terms of the, when you add in other fees related to the transaction as well has remained pretty consistent. So as I've been showing you all the interest rate slides, add accordingly if you wanted to get the points in there, but actually very consistent. Next question that I'm seeing in here is what's your estimate of the overall market for RTL on an annual basis? Sean and I were just discussing this and I'll let you are a better knower than I am on this one, Sean.

Sean Morgan:

Yeah, in the last 12 months, you're looking at roughly 200,000 private lending loans being originated. That's on the last 12 months. So that's not 2023, that's just trailing 12 months. And if you think back, I think we are estimating about 58% of those are short-term loans, right? And the average loan size is roughly about three to 350,000. So if you just do the math there, you can kind of add up what the RTL space is in total. And if you do have any questions, please reach out to our analyst team, you can email me and then we can kind of put a little analysis together for you. Because now that we have product mix out there, we're getting a lot of questions from our lenders of, Hey, this is, we know what our product mix is, how is the national average trending? So we're constantly taking a look at that for our customers. So if you have any detailed questions, please don't hesitate to reach out.

Nema Daghbandan:

The next question I have in here is have you seen any trends regarding credit risk in any particular markets to look out for, whether positive or negative? There's nothing that I track internally on the lightning dock side of this that would give me any utility here for that conversation. I dunno if there's anything on your end of it, Sean.

Sean Morgan:

Yeah, one of the things that we track, and we just coined the term negative remarks. So we're looking at lease pendants, notice of defaults, foreclosures, judgments, liens, right? And we have seen an uptick specifically in Florida. I don't know if that's just because the insurance companies are now starting to pull out, it's always been a market that had a higher foreclosure rate than some of the other areas just because of how easy it is, I think, to go through the foreclosure process. But again, we can take a look at that on a regional basis. But yes, we are seeing specifically private lending negative borrowers increase. And what's interesting is if you go back and look at these borrowers and look at their history, they typically have something like a loan modification that has been done before or they had some type of lean exposure. So we had a customer that told us, Hey, I typically always check the borrower experience using Forecasa.

The one time I didn't, I wrote a bad loan and I was kicking myself in the butt, I could have easily just checked that borrower's profile and seen that they had other negative remarks filed against them by other private lenders or loan buyers. It gets a little tricky because if someone's originating their loan immediately to sell it, sometimes it won't be the actual lender that's filing it. It'll be the note buyer that's filing it on the lender's behalf. So in general, we are seeing a slight uptick in negative remarks filed against private lenders. And the biggest thing is what we're seeing is just that data is not being shared from one lender, the next lender. It's also not being reported to the credit bureaus. And the exact words that I heard from one of my lenders, it said, I already know they're a bad borrower.

Why am I going to spend more time and money filing and doing all these things? I just know I'm never going to lend to them again. And once that lender has a negative remark, becomes almost an unsolvable loan on the secondary market, right? So at Forecasa, we're doing a lot more work on borrower verification because we have heard from our clients that fraud is always going to be prevailed in the market, especially in the space that we're in. But people are getting a little bit more creative out there, especially as there's more lenders offering different products in the marketplace. So long story short, we are seeing a slight uptick. Florida's a market to take a look at New Jersey as well, but we can do it further analysis. If you have any questions, please don't hesitate to reach out.

Nema Daghbandan:

Alright, and that was our last question, Sean, thank you for your time today. Thank you everybody who attended as well. It means a lot to us. If you have any questions after the fact or if something comes to mind, feel free to email either us, we'd be happy to answer any questions. But otherwise, hope all of you have a great rest of the day.

Sean Morgan:

Thank you everybody. Thank you Nema, the whole Geraci team. Really appreciate it.