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Lightning Docs
Lightning Docs is the gold standard in document automation software for producing business-purpose loan documents all over the country. Whether you’re working on a short term fix and flip or a 30 year rental loan, Lightning Docs has you covered in all 50 states. Our staff here at Geraci is constantly working to ensure that Lightning Docs is kept current with all the ever changing laws and regulations. So you never have to worry about your document set being outdated or providing you with inadequate protection.
Our goal here at the firm is to provide our clients with peace of mind, which means that we’re always working to provide you with the best and most streamlined user experience possible. Whether that means getting you set up to pair Lightning Docs with your LOS system, setting defaults in our interview or just changing some of the language in our document set, our staff is always ready and willing to help you with whatever you may need. Whether you’re a private lender, a broker, bank, credit union, title company, you name it, Lightning Docs is the solution to all your loan document needs. For more information, please go to www.lightningdocs.com.
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You’re listening to Lender Lounge with Kevin Kim, a podcast dedicated to the private lending industry. I’m Kevin Kim, and my goal is to sit down with key figures in the private lending industry to talk about their business and their personal lives. We’ll get their takes on market conditions, the industry at large, and their personal stories. Overall, I really want to learn more about how they started and grew their businesses. So whether you’re a lender, a borrower, a vendor, an investor, or anyone just interested in learning more about private lending, this podcast is definitely for you. Thanks for tuning in and enjoy this week’s episode of Lender Lounge with Kevin Kim.
Kevin Kim:
Hey guys, Kevin Kim here for another episode of Lender Lounge with Kevin Kim. Today we have a very special guest, Keith Lind with Acra Lending, and we’ve been trying to book this episode for a while, we talked about it, “Hey, when are we going to do this episode?” I’m so glad we’re doing it today. You are in your office today, right? [inaudible 00:01:56].
Keith Lind:
I am.
Kevin Kim:
All right. All right. Thank you for joining us on the show.
Keith Lind:
Thank you for having me.
Kevin Kim:
I know it’s very busy right now, everyone’s traveling like crazy to different conferences and stuff like that, so we’re about to enter a pretty big conference season pretty soon. So please introduce yourself for the audience and tell us a little bit about Acra and we’ll get started.
Keith Lind:
My name is Keith Lind, I’m the CEO of Acra Lending. Acra lending is probably one of the… I’ll say one of the larger private lenders in the US. The company was founded in 2014 by the previous owner, focusing specifically on non-QM. So post the housing crisis, think about, there were no real guidelines to private lending, and then the CFPB and Dodd-Frank introduced the concept of ATR, Ability-to-Repay, and that sort of put the guardrails in place for Acra to start lending and that’s what the company was founded on, was non-QM.
Kevin Kim:
Mm-hmm.
Keith Lind:
We took, or I stepped into the company in 2020 after a transfer of ownership from HPS Investments, which is where I was previously employed for three years from 2017 to 2020. And upon the acquisition I was asked to come over and run Acra along with Kyle Gunderlock. And two and a half years later, we’ve almost doubled the size of the company. We did 2 billion of originations in 2021 in non-QM, in 2022 we’ll do about 2.3 billion of originations. And we recently launched our fix and flip and bridge origination platform. So we’re very excited about that coming into 2023.
Kevin Kim:
And so that’s a really great place to start is so you guys have just added the fix and flip. Well, your entree into the private lending sector was non-QM, you guys started in non-QM, you guys continue to do non-QM, and I’m sure you’ve been asked this a million times, but non-QM is this, it’s an industry term and it’s not really a term of art, and really almost anything that’s non qualifying kind of fits in that bucket. And so for our listeners in the private lending sector or the hard money sector, it’s been kind of a weird amorphous concept. So tell us from your perspective as one of the industry leaders in non-QM, what does exactly does it mean? What does [inaudible 00:04:19] mean?
Keith Lind:
So I agree with you, it’s somewhat the standard, call it hybrid acronym in the industry.
Kevin Kim:
Mm-hmm. Right.
Keith Lind:
So again, post the housing crisis, the government came up with a concept of a qualified mortgage.
Kevin Kim:
Mm-hmm.
Keith Lind:
And a qualified mortgage is really a consumer loan that is eligible, right, through Fannie and Freddie. But unfortunately that excludes a fair amount of people in America, specifically the self-employed, where if you don’t have a W-2, you can’t get a loan through Fannie or Freddy. So hence if you are self-employed, you don’t qualify, so you are non-qualified per se, hence non-QM.
Kevin Kim:
Right.
Keith Lind:
And that’s really where it was based from, but it’s a growing part of the US loan market, right?
Kevin Kim:
Mm-hmm.
Keith Lind:
More and more people want to be self-employed, less and less people every year want to work for a big corporation.
Kevin Kim:
Right.
Keith Lind:
There’s more entrepreneurs today than ever before, and that’s some… right, the gig economy is growing. And if you look at our production, 50% of it is consumer loans, people purchasing a home for themselves, right, whether self-employed or have their own business. There’s other examples too, just self-employed tends to be the largest one. But the other 50% of our production is investor loans. So small mom-and-pop business-
Kevin Kim:
Was that always the case back even starting in 2014? Or was it-
Keith Lind:
It wasn’t.
Kevin Kim:
Okay.
Keith Lind:
So yeah, it wasn’t. The investor portion has grown significantly and I think, huge tailwinds in that sector given what’s going on in the stock market.
Kevin Kim:
Mm-hmm.
Keith Lind:
Now, home prices don’t go up forever, but if you’ve been an investor buying investment properties, the last five years has been very incredible returns.
Kevin Kim:
Sure.
Keith Lind:
And we see that continuing. If you got to look at the technicals, we’re short 5 million homes in the US.
Kevin Kim:
Right.
Keith Lind:
And that was due to the fact that builders stopped building during the housing crisis, and really the pandemic really brought this out to light.
Kevin Kim:
Mm-hmm.
Keith Lind:
And people didn’t want to live in apartment communities, they wanted their own house.
Kevin Kim:
Right.
Keith Lind:
And we think that’s a huge tailwind moving forward. And also again, look at stocks, they’re down 20 plus percent.
Kevin Kim:
Oh yeah.
Keith Lind:
Will housing have a correction? We believe so. Do we think it’s going to be 20%? We don’t. But again, in the stock market you’re buying companies or investing in companies where most of them don’t even pay you a dividend or any cash, housing does.
Kevin Kim:
Right.
Keith Lind:
So I think moving forward there’s going to be just a lot more confidence in the housing market for investors to buy investment properties.
Kevin Kim:
So I mean the investment property component of Acra’s business sounds like it was a relatively new addition, was that after you had joined or was it before that?
Keith Lind:
No, they had it prior to me coming here, but it’s just been a bigger focus. I’ll give you an example. When I stepped in the Acra’s business when it was founded, it was built off brokers.
Kevin Kim:
Mm-hmm.
Keith Lind:
A very minimal focus on retail and correspondent, which is something that we’ve grown-
Kevin Kim:
Sure.
Keith Lind:
… since I’ve gotten here. But one of our focuses was from the standpoint of dealing with brokers, we only dealt with licensed brokers.
Kevin Kim:
Mm-hmm.
Keith Lind:
And when I stepped in here and we started peeling things back and looking at the way the company was running and how we were targeting investors to purchase homes, well, we realized, and I realized that there’s a huge market out here to tap brokers who are unlicensed.
Kevin Kim:
Yes.
Keith Lind:
So with the help of Geraci and Kevin and his teams, thank you very much, we are able to go state by state and figure out, “Okay, where can we start marketing to non-licensed brokers?”
Kevin Kim:
Right.
Keith Lind:
And that’s been a huge success for us in increasing our volume, and that’s why-
Kevin Kim:
Big change of pace when you’re dealing with all that consumer compliance, right?
Keith Lind:
Well that’s right. That’s right, but that’s why we’re at 50% investor when two years ago we were at 25% investor.
Kevin Kim:
Right. And was the initial thesis around kind of the term rental program, what was the focus for a while? Or was it all the [inaudible 00:08:55] groups in our sector? Because you said you just added bridge you said recently, right?
Keith Lind:
So we’ve expanded our DSCR or investor loan.
Kevin Kim:
Mm-hmm.
Keith Lind:
We have added small balance multifamily-
Kevin Kim:
Oh, great.
Keith Lind:
… from permanent financing 5 to 24 units.
Kevin Kim:
Fantastic.
Keith Lind:
And then we’ve added bridge and fix and flip for 1 to 4 and 5 to 24.
Kevin Kim:
Mm-hmm. Okay.
Keith Lind:
On the multifamily side.
Kevin Kim:
So I mean I want to get deeper into that and also those tailwinds you were mentioning, but I still feel like our audience wants to get to know you a little more because-
Keith Lind:
Okay.
Kevin Kim:
… I mean I’ve been in this space now eight years and I remember seeing Acra at a few different events and then all of a sudden Acra really blew up in our sector, in the private lending sector, I started seeing you guys everywhere. And then we met two years ago, and so I feel like our audience, they know about Acra, they know what you guys do, but I was reading your bio and you come from a capital markets background, right?
Keith Lind:
I do. I do.
Kevin Kim:
So tell us a little bit more about yourself.
Keith Lind:
Yeah. So I started my career on the other side of this, not where the loans were made, but where the loans end up.
Kevin Kim:
Right.
Keith Lind:
So I started my career after graduating Purdue University in 2001. My first job out of college was at Bear Stearns.
Kevin Kim:
Mm-hmm.
Keith Lind:
And it was on the fixed income trading floor in New York, and my first two years at Bear, I was on the structuring side, so the modeling side, figuring out what loans do get securitized, modeling cash flows, whether it be for non-agency, ABS, multi-family, commercial real estate, CMBS side. So I spent two years there and then after two years I had the opportunity to go to the trading desk where I started trading loans, purchasing large loan packages, this is 2005, so think about the next three years [inaudible 00:10:55] so-
Kevin Kim:
Yeah. You were there on the ground floor.
Keith Lind:
I was buying loan packages, 500 million to a billion on a clip.
Kevin Kim:
Right.
Keith Lind:
And then structuring them up and then going out to our sales force and selling the bonds to our institutional clients.
Kevin Kim:
Right.
Keith Lind:
So fast forward, housing crisis takes place and Bear Stearns gets acquired by J.P. Morgan. 13 of us left Bear Stearns, there were seven traders and I think six salespeople, got recruited to go to Royal Bank of Scotland to build out their capital markets business. And so we were there from 2008 to 2015, where I was running a loan trading desk, and also CUSIPs.
Kevin Kim:
Mm-hmm.
Keith Lind:
And then they decided to get out of the capital markets business, and then my boss and I were recruited to go to Brevan Howard. It’s about a 40 billion dollar global macro hedge fund based out of Geneva and London, founded by Alan Howard. We were there from 2015 to 2017.
Kevin Kim:
Still doing the same thing?
Keith Lind:
Still doing the same thing, structure products, trading bonds, still distressed bonds from the housing crisis.
Kevin Kim:
Sure.
Keith Lind:
And then in 17 we were recruited, both of us again go to HPS Investments. They’re about a 85 billion dollar private equity fund based out of New York, solely focused for the most part on corporate credit, but they wanted to get exposure to the restructure products where what I’ll say is housing related or real estate related structured product side. So I was there for two years and there wasn’t much to do because the distressed opportunity was starting to fade.
Kevin Kim:
Mm-hmm.
Keith Lind:
Prices just were approaching par again, so the convexity or upside just wasn’t there on the bonds. And I had pitched to my boss, Purnima Puri and the other partners at HPS about getting into the private lending space.
Kevin Kim:
Okay. What year was this?
Keith Lind:
That was in 18, middle of 18.
Kevin Kim:
Okay. So that’s when things were getting hot and heavy in the private lending sector. Yeah.
Keith Lind:
Yeah, that’s right. And it was sort of ironic because we met with four companies and one of them being Sprout.
Kevin Kim:
Mm-hmm.
Keith Lind:
So we were able to get under the hood and just see what Mike Strauss was doing.
Kevin Kim:
Mm-hmm.
Keith Lind:
And we talked to Deephaven, which got acquired by Pretium.
Kevin Kim:
Yep.
Keith Lind:
So those were the main three that we cared about, meaning the third one being Citadel Servicing, which is now Acra.
Kevin Kim:
Right.
Keith Lind:
And after taking a hard look, we were confident to say we did make the right decision.
Kevin Kim:
Sure.
Keith Lind:
Citadel was the previous owner built a very buttoned up attention to detail platform.
Kevin Kim:
Mm-hmm.
Keith Lind:
Second to nobody that we spoke to.
Kevin Kim:
Right.
Keith Lind:
It was that buttoned up.
Kevin Kim:
You have to be in servicing, you have to be real tight in servicing, which is a really good move looking at-
Keith Lind:
Not just servicing, but the origination side as well.
Kevin Kim:
Oh yeah. But that’s the nice part, they brought that mentality with them on the origination front. I noticed that early, early on.
Keith Lind:
You bring up a good point, we are one of the only non-QM originators that originate and sell our loans, serviced and retained, we retain all the servicing.
Kevin Kim:
Right.
Keith Lind:
So we have two businesses, we have a servicer, which is Citadel Servicing, then we have the originator, Acra Lending.
Kevin Kim:
Right. And for a lot of us in this space, Citadel’s reputation preceded Acra before it came out. I didn’t know Acra was owned by Citadel until I started looking into the company and I was like, “Oh, that’s really impressive.” Because Citadel has had a great reputation over the years as a really strong servicer.
Keith Lind:
Yeah, as a strong servicer.
Kevin Kim:
Yeah.
Keith Lind:
The reputation on the origination side needed some improvement.
Kevin Kim:
Oh sure, everyone does, I mean [inaudible 00:14:44].
Keith Lind:
Yeah. And hence why we rebranded to Acra.
Kevin Kim:
Right.
Keith Lind:
And that was the message to the market is we have new ownership, we have new leadership and we’re going to do things a little bit differently. [inaudible 00:14:53]-
Kevin Kim:
Well, I want to go back to that 18 event though, when you were pitching the partners at HPS about this, what was it about the industry from your perspective? Because we don’t get a lot of folks that were on the ground floor on the secondary side, on the capital market side.
Keith Lind:
Yeah.
Kevin Kim:
And it’s very hard to hear these perspectives on the show, we only get a few of these opportunities, so I really wanted to hear from your perspective on this, because in 18 things were just starting to really heat up in this sector, so…
Keith Lind:
So that’s what we saw.
Kevin Kim:
Mm-hmm.
Keith Lind:
Again, my background is really on the other side of talking to originators every day and wondering how can we aggregate loans and securitize them and-
Kevin Kim:
Sure, sure, sure.
Keith Lind:
… when you’re on the sell side, we’re talking to customers who want to own the equity, who want to own the lower part of the capital structure and the top [inaudible 00:15:39] structure. So our pitch was… I’m sorry, the pitch that we went with, myself and the deal team was exactly that. This is a nascent opportunity, coming off the housing crisis, guardrails were just put into place regarding ATR, this is a huge opportunity and if you look at how much more stringent the underwriting is today versus the housing crisis, I mean the housing crisis, most of those were 100 LTV loans, [inaudible 00:16:08].
Kevin Kim:
You just needed a pulse to get a loan.
Keith Lind:
Yeah. And today’s just a much different story and people are held accountable for what they’re originating.
Kevin Kim:
Yeah.
Keith Lind:
And that was really the opportunity is if we could find a platform that’s been built to the standards that we want, there’s a huge opportunity and we found that in Citadel Servicing.
Kevin Kim:
So it sounds like there was a lot more comfort because the opportunity was pretty self-explanatory, but the comfort level as compared to the subprime crisis when it came to the underwriting guidelines that was one of the factors that really pushed the needle for you guys to move forward then, right?
Keith Lind:
Yeah. Absolutely. It was, again, I was just looking at our production. Our production’s been pretty consistent since we bought the company.
Kevin Kim:
Sure.
Keith Lind:
So think you’re talking four and a half billion dollars of originations at a 67.7 LTV.
Kevin Kim:
Right.
Keith Lind:
You’re putting down 33%, that’s skin in the game.
Kevin Kim:
Right.
Keith Lind:
And we expect or anyone would expect those loans to perform well and they are, and even during COVID there was a pocket of stress there, but again, this will be the real test. And I think even through COVID, I was speaking to investors back in New York when they knew I was coming here, but even when we got through COVID and people saw their performance, multiple and I’m not going to throw a number out exactly, but we saw a lot more institutional interest into non-QM because it sort of got put on the map and it performed well through COVID, but I think the next year or two is going to be very telling, but we’re extremely confident in the strength of the borrowers that we lend to.
Kevin Kim:
That’s fantastic. And I want to talk to you about kind of the transition into what we call private lending because non-QM was kind of the initial foray and then you guys added more what we call private lending stuff. And I think that the in-between component was the investor term rental loans, right, those long-term loans that didn’t really hit the space until 19-ish, but the transition must have been a kind of culture shock for you guys. Talk about that real quick.
Keith Lind:
Yeah, it very much was. I’ll just go back to the previous owner who built this business, again, attention to detail and process was everything, and we’re very buttoned up and proud of that. When you step into the transitional space, it’s sort of The Wild West.
Kevin Kim:
A little bit.
Keith Lind:
Yeah.
Kevin Kim:
Comparatively speaking out, it just it’s like commercial, so it’s very, very minimalist underwriting comparatively speaking, so…
Keith Lind:
So I think we hit some bumps in the road because we wanted to somewhat belabor the files and the underwriting and the attention to detail, when then we realized, well, these aren’t consumer loans, they’re not going to be regulated like consumer loans. We spoke to other investors and other lenders to figure out, okay, what are you comfortable with? Because the people, the institutional accounts that we sell our loans to were clearly in already participating in transitional loans.
Kevin Kim:
Mm-hmm.
Keith Lind:
So we just got a better feeling from them of what they’re comfortable with, what they think is market. And then we had to adjust our processes and sort of start from scratch almost.
Kevin Kim:
Mm-hmm.
Keith Lind:
And a year later we’re there, we’re very confident with what we have, we built an in-house proprietary technology or LOS, but again I go back to Geraci and your team, it was a huge help for us answering those hard questions because we are buttoned up and we want to do things right and our attention to detail is always going to be there. What do we need to do? And what don’t we need to do? And those [inaudible 00:19:55]-
Kevin Kim:
Yeah, and that was the hardest part, I feel like. It’s just one of those, I can’t believe it’s [inaudible 00:20:03], it’s I can’t believe it’s that straight, that simple. But the RTL space for you though, actually it raises another question for me because back to your capital markets background, was the RTL space on your radar back then?
Keith Lind:
It wasn’t.
Kevin Kim:
It wasn’t. Okay.
Keith Lind:
We had heard about it, it just wasn’t scalable yet.
Kevin Kim:
Right.
Keith Lind:
From the standpoint non-QM was scalable, we knew we could buy-
Kevin Kim:
Sure.
Keith Lind:
We could get [inaudible 00:20:25]-
Kevin Kim:
It was being securitized, you could see it happening.
Keith Lind:
We could buy 5, 600 million over a couple of months.
Kevin Kim:
Right.
Keith Lind:
The transitional RTL side just wasn’t there yet.
Kevin Kim:
And is that because of a lack of bond sales happening? [inaudible 00:20:38] of a handful of bond sales being structured back then? Or-
Keith Lind:
No, there just wasn’t the ROCs and the [inaudible 00:20:44] were just getting going.
Kevin Kim:
Yeah.
Keith Lind:
So they were just starting to scale and that’s why-
Kevin Kim:
18 was when they really started to pick up a lot of money.
Keith Lind:
Yeah, but that supply was spoken for, they already had partners. So as we were looking through those loans when I was in New York, they weren’t readily available like non-QM ones.
Kevin Kim:
I see. It’s a matter of volume nationally speaking.
Keith Lind:
That’s right.
Kevin Kim:
That’s true, it’s a much smaller market. That makes sense. Okay. Very cool. All right, so I want to talk about those tailwinds you were mentioning earlier because those definitely I love this kind of stuff and I really appreciate what we heard earlier about the tailwinds in this industry. And I really want to kind of get into that because I mean for our listeners right now we’re recording, it’s September 29th, we just had another Fed rate hike, not too long ago. And there’s a little bit of disruption going on, a lot of people are speculating and freaking out. And you mentioned the stock market and it’s not doing so well is a kind of understatement. I would really want to get your thoughts on that, where are we headed? Where do you think we’re headed?
Keith Lind:
So just to take a step back, the last nine years.
Kevin Kim:
Yeah.
Keith Lind:
Coming into this year, call it four or five months into the year, or six months into the year, or seven months into the year. So four months into the year, the only two assets that really held up, that were doing very well were commodities, oil specifically, and housing. And now if you look at the last three months, what started to go sideways is commodities based on growth fears and higher rates and slowing down the economy, not just here but overseas as well.
Kevin Kim:
Right.
Keith Lind:
So the last asset class that is holding up and we expect there to be some cracks, we expect… housing just can’t go up forever, it’s just not going to.
Kevin Kim:
Sure.
Keith Lind:
But the stock market, 11 plus trillion dollars wiped off. Bitcoin, two plus trillion dollars wiped off the market value, those are staggering numbers. Now you’re looking at what’s happening with oil, and that’s going to be very dependent on what happens over in the geopolitical stuff going on with Ukraine and Russia.
Kevin Kim:
Right.
Keith Lind:
But we’re bullish on housing and I think investors are as well. But again, understanding the fact that housing doesn’t go up forever. All the certain areas in our opinion like Phoenix, Boise, Denver, Nashville, these places that are up 100, 200, some neighborhoods 300%, that’s going to settle back down to earth. Everything comes back to equilibrium, and you have to look at the way we think about it is, okay, wages are going to start going down, wages don’t go up forever. So when wages start going down and people… there’s always the affordability equilibrium. And now compounded with that, wages, you have to understand, interest rates have doubled since the beginning of the year. I was just looking at our production in December of 2000… I’m sorry, in December of 21, our coupon that we funded 261 billion out of 455 coupon. Our August production was an 805 coupon.
Kevin Kim:
All right.
Keith Lind:
So payments are higher and that’s going to cut into people’s affordability to make payments, and then you also have wages are going to probably settle down. So the places that had massive spikes is what we’ll say, we think those come back down to earth. But we are still very bullish on different parts of the US where jobs are being created, where companies are moving too. And that’s getting noticed by investors that are coming to us for loans.
Kevin Kim:
And that raises an interesting question because [inaudible 00:24:28] have that demographic growth because of job creation are the same markets in a lot of ways, I mean some of them, Texas, Phoenix, Austin, Texas specifically, Austin, Dallas, Phoenix, these are cities that have… and Boise as well have been… and even Reno have been recruiting these businesses to set up shop there and thereby recruiting more people, but by that virtue, HPA is out of control, right. Phoenix is one of the really good example, it’s insane over there. And so it raises an interesting question. Aren’t those the same markets that are overinflated or over… and won’t that equilibrium… but will that demand side of things keep HPA at more of a steady, I guess not upward level but plateau it, because you’re saying it’s going to come down. I’ve heard a few different people [inaudible 00:25:24] because of the amount of job growth happening in these cities, they just don’t have the infrastructure to support it.
Keith Lind:
So one rebuttal to that. Job growth, the government’s doing a very good job of halting job growth.
Kevin Kim:
Oh, that’s true. Their goal right now is to create unemployment.
Keith Lind:
Well, that’s their goal.
Kevin Kim:
Yeah.
Keith Lind:
So that’s their goal, so with that goal in mind, I’ll take the other side that… again, it’s just not going to go up forever and with-
Kevin Kim:
Right. It has to come down eventually.
Keith Lind:
Well, you’re seeing what’s happening. Every market’s being affected by this and-
Kevin Kim:
Yes.
Keith Lind:
… you can’t… people can’t afford homes when you double the interest rate that they were buying a year ago.
Kevin Kim:
Sure.
Keith Lind:
And-
Kevin Kim:
Yeah.
Keith Lind:
… the one thing that we’re seeing which is pretty interesting, the average balance of the investor loans that we’re funding are much lower than they used to be.
Kevin Kim:
Yes.
Keith Lind:
But that’s smart, right, because there’s more upside in a $200,000 home than there is for a $600,000 home.
Kevin Kim:
Yes. And we saw the same thing on our platform too, we saw a significant decline in loan amounts?
Keith Lind:
Yep.
Kevin Kim:
Rates are climbing but loan amount… which means leverage is shrinking, which is a great thing. People are being more conservative.
Keith Lind:
That’s right.
Kevin Kim:
But lenders are being more conservative, but at the same time-
Keith Lind:
But so are investors because they’re going on sort of those lower balance [inaudible 00:26:37].
Kevin Kim:
Right. But at the same time, the interesting question mark becomes kind of like how even in the recession there were certain were markets in California that just didn’t take a dive comparatively to other cities that didn’t have the stability that you have in California.
Keith Lind:
Yep.
Kevin Kim:
And so will we see the same result? Because you had this massive inflation and value in Phoenix and Las Vegas and I mean Reno is a different story, but it makes you wonder how bad the crash can be?
Keith Lind:
We’re seeing a lot less loans from California, our California percentage is going down. And it makes sense, especially from an investor perspective. Do you want to be buying investor homes in California?
Kevin Kim:
Probably not.
Keith Lind:
Well, think about how tight the cap rates are.
Kevin Kim:
Yeah.
Keith Lind:
They’re extremely tight, so are there other-
Kevin Kim:
That’s another fascinating issue is that the cap rates aren’t moving like they should. They should be moving, but they’re not.
Keith Lind:
But there’s a lag with that, and as rates go up and people… there’s less homes being bought by investors, cap rates will widen out.
Kevin Kim:
Right. So what I’m hearing is you’re still optimistic, but the party’s kind of over. The party’s over. Let’s get a-
Keith Lind:
I guess yeah, if the people that got used to buying a home and flipping it up 50% or-
Kevin Kim:
Right.
Keith Lind:
… or even, I think that’s over.
Kevin Kim:
Keith Lind:
Yeah. We definitely need more houses.
Kevin Kim:
Yeah. [inaudible 00:29:37].
Keith Lind:
From the opening comment, I’ll tell you this, I’m seeing it just from my contingency of friends and customers back in New York, there’s a ton of capital being infused into build for rent, new construction.
Kevin Kim:
That’s good.
Keith Lind:
It is good. But you’re also seeing a lot of homes that maybe weren’t desirable and great MSAs that needed to be [inaudible 00:30:00], that’s going to help out as well.
Kevin Kim:
Sure. Agreed.
Keith Lind:
So it’s going to take time, nothing happens overnight.
Kevin Kim:
Mm-hmm.
Keith Lind:
So this is the way we think about this is it’s a marathon, it’s not a race, but again, we still have some concerns about this. Some of the bigger cities like a Phoenix where you could just keep building forever.
Kevin Kim:
Yeah.
Keith Lind:
A lot of cities aren’t like that, it’s just a flat map and then it’s a grid that just keeps going and doesn’t stop.
Kevin Kim:
Right.
Keith Lind:
So I think there’s no barriers to entry there, there are barriers to entry in other cities.
Kevin Kim:
Mm-hmm.
Keith Lind:
But again, if you look at the Southwest and the Southeast, affordability is much better than other parts of the country.
Kevin Kim:
Sure.
Keith Lind:
And you have big employers moving there. So I think again, we’re not expecting a massive housing crash, but I think some cities have to sort of level out and readjust.
Kevin Kim:
Right. But will it take something as dramatic as some type of tax incentive or zoning incentive or something like that, with recent… we’re hearing California had that ADU thing where they made it easier to get approvals for ADUs. Well, I felt like it wasn’t enough, we need to… I mean what kind of roadblocks can be removed to facilitate that? Because a lot of arguments are being made that even if you were to infuse capital, there’s just not enough. There’s just not enough on the build-out side, right? It’s hard to get going.
Keith Lind:
Yeah. I think politics will ruin any chance of anything positive getting done.
Kevin Kim:
That’s true.
Keith Lind:
If we threw out the far-right and the far-left and had a down-in-the-middle group of people, things would get done. But I don’t see anything coming out of the government or the politicians that’s going to help this. [inaudible 00:31:46] are great, but again, you also have, the other problem is look at who’s competing, and I know this has been talked about a lot. Investors are competing with first-time home buyers to buy homes.
Kevin Kim:
Yes.
Keith Lind:
So something else that… I know there’s been some comments and potential bills put up, which I didn’t agree with, I think you guys took the same stance we did.
Kevin Kim:
Sure. Yeah.
Keith Lind:
But I think one of the things that would help is… a lot of these municipalities when you go to build new construction and I’ve seen it firsthand, it just takes too long and the whole process, it’s not efficient. Some cities are worse than others, some cities are a lot better than others. But if they could streamline that process where it wasn’t so belaboring, we would have a lot more homes, but that’s just not the case, they’re understaffed and undereducated in my opinion.
Kevin Kim:
Exactly. And there’s a lot of, they don’t really understand when they see a build-out and they automatically think… the only thought process going on at the legislative level is affordable housing, and that’s just not enough. If you concentrate on affordable housing and help that, you’re not going to help the overall inventory, [inaudible 00:33:03]. But what’s interesting with what you said was the iBuyers, but on the flip side, the iBuyers themselves are actually struggling, which I was actually excited to see when companies like Zillow and Opendoor are kind of getting away from this a little bit, they’re not as excited about this sector anymore, or they can’t keep it up because there’s massive loses.
Keith Lind:
They don’t have a choice to not be excited, this is their business model. And I had met with one… I’m not going to name the company, but I had met with one of them at a conference.
Kevin Kim:
Mm-hmm.
Keith Lind:
And I had framed the question, I said, “Home prices don’t go up forever, how does this work when things change?” And they were like, “Oh we’ll just keep flipping homes and we’ll earn our way out of it.” Well, obviously that doesn’t work like that.
Kevin Kim:
Sure.
Keith Lind:
Because everything changes, leverage changes, execution changes and add on top of all this supply chain issues and everything in between, now you have higher rates, less demand. I think the people that just thought, “We’re going to be in this home flipping business and everything is hunky-dory and there’s going to be no issues.” This is the most cyclical business.
Kevin Kim:
Yeah.
Keith Lind:
Well, one of them in the United States is the housing [inaudible 00:34:12].
Kevin Kim:
Oh yeah.
Keith Lind:
It goes up and down violently, but I’m hoping they get through it. I don’t want to see anyone in this business go out of business.
Kevin Kim:
No. For sure.
Keith Lind:
But tough sledding for all of us, but them as well.
Kevin Kim:
Let me ask you this, since you’ve seen the cycles, right? You were on the ground floor during the crisis, what do you think it’s going to take for lenders to make it through this next kind of correction? Because we’re definitely facing one, I mean I don’t know if anyone disagrees that we’re not facing one, so what’s it going to take for someone to… a lender out there, one of our listeners, either small or big to make it through this next cycle?
Keith Lind:
It really depends on how you’re structured.
Kevin Kim:
Sure.
Keith Lind:
Stepping into to Acra and understanding… first you have to understand your balance sheet.
Kevin Kim:
Mm-hmm.
Keith Lind:
What is your liquidity? Who are your capital partners? How committed are they to the private lending space? Because when we originate a loan, and for the listeners who are going to listen to this, we don’t have the luxury of going to Fannie and Freddie and delivering at the cash window and saying, “Hey, I originated this, take it off my hands.”
Kevin Kim:
Right.
Keith Lind:
We are dependent on private capital, so I think understanding liquidity is paramount. It just is, and one of the lessons that I took into this is especially coming into this year is, and I’ve said this before, we are not in the storage business, we’re in the moving business. So my thoughts to people that are out there is when you originate a loan, sell it as fast as possible. Don’t wait for the market to correct, the housing market is too big and it just moves too fast. Meaning prices move too fast up and down, in this case the first eight months of the year down significantly. Four and a half coupon loans, now if you’re still are holding them, you might not get… you’re not going to get 90 cents on the dollar. You could be mid 80s, mid to high 80s for a four and a half coupon, so that’s a big loss. And if you took the side of waiting for the market to come back, you could have problems, so just got to stay vigilant and keep the machine moving, keep selling.
Kevin Kim:
So in the same note though the secondary market has presented challenges for a lot of lenders out there, right? And so with pricing being [inaudible 00:36:26]-
Keith Lind:
But that goes back to my other part, you have to know who your capital partners are, and you have to know how committed they are to this business.
Kevin Kim:
Right.
Keith Lind:
And if you’re selling loans to someone who’s in it for the short term, that’s probably not the best capital partner. You might want to find someone who’s got the sticky money that cares about this-
Kevin Kim:
That’s the answer, the sticky money, right? The sticky money, because they have to care about it and they have to be able to manage it. And whether it be an institutional… well, I mean, I don’t know if this is true, but we’ve been hearing a lot of interest from Life companies, right? This is now becoming the darling of LifeCo, it was once the darling of Wall Street now a darling of LifeCos, right? So that seems to be the switch over from a capital source perspective in this, right now at least.
Keith Lind:
Yeah. We recently partnered with a fantastic insurance company, again committed to the space.
Kevin Kim:
Right.
Keith Lind:
And wants good loans. The difference of what happened and why insurance companies are coming in when rates were low and non-QM loans were trading at 107, the math didn’t work for insurance companies. When you get the loan price below 103, the math really works, starts to work. That’s why insurance money has stepped in.
Kevin Kim:
Well, for our audience, explain that, because I know what you’re talking about because I just wrote a paper on this recently. But for our audience, please give us a little more.
Keith Lind:
Yeah. So insurance companies have to match their liabilities to assets, and they need duration on these assets. Non-QM is a great place to pick up spread, over agencies or other products. And I think the insurance companies have spent a lot of time over the last couple of years getting comfortable with non-QM, their performance, really what’s behind the loans and who are the borrowers. And when you’re trading loans at 105, 106 dollar a price, the math doesn’t work on the total return that they need on the investment. But when you get down to the 103s or 102s, the math definitely works, it’s an attractive asset for them that they have a lot of demand for. And given where loan prices are because of where interest rates and volatility in the securitization market, loan prices are from anywhere part of 102 or 102 and a half. And this is a sweet spot for insurance companies. And I think they’re putting their foot in the sand and saying they want as many non-QM loans as possible.
Kevin Kim:
Right. And it seems to be that they’re interested in not just-
Keith Lind:
Same thing in RTL as well.
Kevin Kim:
Yeah.
Keith Lind:
Yeah, that’s right.
Kevin Kim:
I mean on the RTL side, what’s always been fascinating is it’s not really a premium trading business, there was always been spreads and stuff like that, but it was never a big premium trading business. But what’s been fascinating is that the amount of risk they’re willing to take, because you see the amount of leverage they’re taking on to balance these loans and then they’re going to do what they will with them, but they’re really into it. It was surprising because not five years ago they would only touch your average CRE deal, but now they’re really excited about the space. I mean I’m more exposed to the RTL lenders by virtue of who I am and who I serve, but what’s fascinating is the amount of activity that we’re seeing, both with the aggregators who are working with them, but also our retail clients who have their own small funds, and some of them are growing quite big and they’re working with now, they’re negotiating with LifeCos.
Keith Lind:
Yeah.
Kevin Kim:
And so it’s been fascinating to see how much stickiness, right, the commitment that we didn’t use to see, because I remember eight years ago we were talking with a life insurance company in New York and they were not very clear on what they wanted. And I think what the problem was, they couldn’t understand the sector. And so now eight years later, they really get it.
Keith Lind:
That’s right.
Kevin Kim:
And it makes me wonder what it is? What it is about it? Because nothing’s changed really, right? The only-
Keith Lind:
No. It goes back to understanding, getting comfortable with the asset and how it’s originated. And again, it was a novel, this new idea that came out for fix and flip. And I think there was issues about, okay, how scalable is this? And is this something… if you’re talking to a life insurance company and they’re going to bring on a new product, there’s a lot of brain work that they do to make sure that this is going to work and it’s a good investment. And they don’t race into anything, it’s a walk before you run process.
Kevin Kim:
Slow and sure. Yeah.
Keith Lind:
Yeah, walk before you run. And now you’re seeing a lot of them get very comfortable with the space and getting very comfortable with the underwriting and the originators that are originating.
Kevin Kim:
So question for you, in this same kind of topic, is the securitization market ever going to come back?
Keith Lind:
Yeah, of course.
Kevin Kim:
For this RTL stuff.
Keith Lind:
No, of course. Yeah. I believe it will. I think, like I said, I think institutional investors are waiting to figure out, number one, how high are rates going to go?
Kevin Kim:
Yeah.
Keith Lind:
If they keep going up, they’re probably going to stay away from RTL in some form or manner, depending on what the after repair value is and who… again, there’s a trust aspect when you’re dealing with this, how much work is being done on the underwriting side and so forth. So I think people are still comfortable with it, there’s liquidity.
Kevin Kim:
So they’re just trying to figure out… they’re just trying to punch the numbers, make it [inaudible 00:41:42].
Keith Lind:
Yeah. But I don’t think they’re racing to load the boat on RTL right now.
Kevin Kim:
Mm-hmm.
Keith Lind:
But selectively they absolutely want to add the exposure, and they want to… there’s an aspect too, we’ve never seen this before, but actually we were asked by one person, but investors that are buying loans now want to know that the originators are going to be alive because the originator makes [inaudible 00:42:07] on the loans that they’re making.
Kevin Kim:
Oh, yeah.
Keith Lind:
And so institutional buyers that buy loans are asking originators, “Can we see your financials? We want to know that you’re in good shape and your balance sheet is clean.” And-
Kevin Kim:
That’s becoming more and more of a topic, it wasn’t a topic, not even-
Keith Lind:
That’s right.
Kevin Kim:
… [inaudible 00:42:25] balance sheet. I want a balance sheet, that was the story. And the more and more I talked with folks that were buying loans upstream of the aggregators and I started talking to them in personal meetings and asking them the big conversation around balance sheet became a thing and how much risk can you absorb alongside with me? Because I’m not taking all the risk.
Keith Lind:
Yep.
Kevin Kim:
Yeah, and that’s great. I think that’s a really good idea because that once again bolsters the industry to embrace better practices, right?
Keith Lind:
Yeah.
Kevin Kim:
We don’t want to be [inaudible 00:42:59].
Keith Lind:
That’s exactly right.
Kevin Kim:
Right?
Keith Lind:
That’s right.
Kevin Kim:
What’s fascinating though is on the non-QM side is we’ve seen such market disruption lately and a lot of folks are struggling. A lot of shops, I mean some of them are gone, you mentioned Sprout earlier, they’re no longer around and a lot of them have really fallen apart, and because I’m not really that involved in the sector, I’ve always wanted to ask you specifically this is I was going to ask you this at a conference at least in a few weeks, but what’s going on in that sector that’s causing all that? Because it’s been really strange to see some of these companies [inaudible 00:43:33].
Keith Lind:
Yeah. It goes back to what I said earlier. Sprout got stuck with a lot of loans that they should have sold months prior. And if you’re not constantly cycling, recycling your balance sheet and you’re holding onto loans thinking, “Oh, I don’t like the bid today, I’m going to wait, next week, it’ll get better. It’s never gotten better, it’s been a one way train where prices keep heading south.
Kevin Kim:
Yeah.
Keith Lind:
And that was part of it, and there was other aspects, right? Think about people that hedge, the rates markets have been so volatile. And when you hedge and you have a counterpart, you have to true up that day, that night you true up. So if you make money, great, you true up. If you lose money, you got to true up as well.
Kevin Kim:
Yeah.
Keith Lind:
So when rates rallied there at the end of August coming into September, that was super painful. I’m sorry, maybe it was July, I’m blanking on when the rally was, but that was very painful for a lot of [inaudible 00:44:27].
Kevin Kim:
For sure. Massive liability on the books.
Keith Lind:
Yeah. That’s right.
Kevin Kim:
That explains a lot. That really does. All right, well, I mean enough [inaudible 00:44:36] for this one. I want to make sure we talk a little bit more about… get to know a little bit more about you guys and what you’re working on. So you mentioned you recently added RTL, and so I wanted to ask you, so what are you guys working on for the near future coming toward the tail end of 22? We’re heading on to 23, what’s Acra working on for 23?
Keith Lind:
Yeah, so again, I had mentioned earlier that wholesale was the driver behind [inaudible 00:45:05] when we bought the company.
Kevin Kim:
Sure.
Keith Lind:
And now we have a lot of initiatives, one of them, growing wholesale. We hired the West Coast team from Sprout, they’ve been fantastic.
Kevin Kim:
Awesome.
Keith Lind:
Huge addition to Acra, they’re extremely knowledgeable and adults in the room, which is… and we’re still hiring, we’re still hire… we have multiple positions open on sales and operations. And so we want to keep continuing to grow wholesale, same thing with correspondent. Jeff Lemieux, who runs that business as a concerted effort, again, it’s the correspondent business has a higher level of risk because of the timing to get loans up and down and to get a TPR review, but that’s something that we’re comfortable with, and same thing on the retail side. Retail was 3%, 4% of our production when I stepped into the company. Now, it was as high as 10% of our production, maybe a little bit higher. So we’re going to keep hiring experienced [inaudible 00:46:02] that understand non-QM that can talk to our customers. And I think from that, we’re then going to start targeting [inaudible 00:46:10] the top 10 to 15 MSAs in the country in either opening locations where we have a conservative marketing effort to really tackle the MSAs that we’re comfortable with and our investors are comfortable with. So that’s non-QM, and then I would say it’s the same thing on the RTL side. Our goal on the next year and a half is to get RTL up to the same origination levels is non-QM. So we got some wood to chop, but it’s a challenge and we’re looking forward to it.
Kevin Kim:
Well, there might be some opportunities as things progress, I mean, [inaudible 00:46:43] is where I live and breathe and there’s probably going to be some opportunities to pick up not just talented people, but also some opportunities as there’s more displacement going on, it’s going [inaudible 00:46:52].
Keith Lind:
Yeah. Exactly right. We would absolutely look at platforms that are struggling and either partner or acquire. So that’s another thing that we’re paying attention to and speaking to different people. And I think we’ve been waiting patiently to get our Fannie and Freddie tickets. I think that’s something that’s going to naturally come our way as more people are going out of business.
Kevin Kim:
Sure.
Keith Lind:
Unfortunately, and it’s always easier to acquire a company that we think has a good management team and a good process in place as opposed to trying to build it from scratch.
Kevin Kim:
Right.
Keith Lind:
So the way I think about it is, no matter where rates are, where unemployment is, where housing is, whatever it is, whatever situation we’re in that we’ve got business verticals at Acra that are profitable. And we learned a very valuable lesson that how important our servicing platform is.
Kevin Kim:
Mm-hmm.
Keith Lind:
When COVID hit and we had to shut down the company, we were able to keep 170 people full-time based just on our servicing business.
Kevin Kim:
Right.
Keith Lind:
And our servicing book has doubled in the last two and a half years.
Kevin Kim:
[inaudible 00:47:58].
Keith Lind:
So we just got to keep building these verticals that we think at the end of the day are a positive for the Acra platform and can add value moving forward to our clients.
Kevin Kim:
I love that. All right, so I want to close the interview with some kind of rapid fire questions to you directly, Keith. We always ask our guests these questions, they’re a little more fun. So the first question I have is, what was your very first job? Your very first job.
Keith Lind:
My very first job, I pumped gas. Now you have to think about this, in New Jersey-
Kevin Kim:
Pumped gas?
Keith Lind:
Well, in New Jersey you can’t pump your own gas. And my father’s friend-
Kevin Kim:
That’s a real thing, that’s not a myth.
Keith Lind:
No.
Kevin Kim:
Oh, I didn’t know that.
Keith Lind:
You cannot do it. So my father’s friend owned a gas station, so I-
Kevin Kim:
Oh.
Keith Lind:
Yeah.
Kevin Kim:
I did not know that was a real thing, I thought it was urban legends you talk about, that’s cool. So it’s retail, customer focused, right?
Keith Lind:
Yeah.
Kevin Kim:
That’s cool.
Keith Lind:
There you go.
Kevin Kim:
That’s cool. Yeah, yeah, yeah. So wait, before we go on then, you were transferred to California then, right? You lived in New York or-
Keith Lind:
Yeah, I was in Manhattan for 19 years.
Kevin Kim:
And then you moved to California when you joined Acra?
Keith Lind:
When we were going to acquire the company, my CEO had asked and then our management team back in New York asked if I’d… oh I raised my hand, but they said, “Would you like to go run it? Your background matches perfectly. It was your idea to do this.” And my hand couldn’t have gone up fast enough.
Kevin Kim:
Right.
Keith Lind:
And they were like, “You should go probably go check with your daughter real quick.” Which I did, and we couldn’t be happier, it’s been nothing but a fantastic experience relocating to Newport Beach and-
Kevin Kim:
Oh yeah, it’s pretty nice over there, yeah. Very nice.
Keith Lind:
But also being here at the company as well.
Kevin Kim:
Oh, for sure. For sure, but that’s a big move.
Keith Lind:
Yeah, it was. Yeah.
Kevin Kim:
Yeah, yeah, yeah. And when was that? How long ago was that when you moved to California?
Keith Lind:
That was in February of 2020.
Kevin Kim:
Oh, that’s recent, right at the height of COVID.
Keith Lind:
Well, that’s right when we bought the… we bought the company on Valentine’s Day, 2020. Well, to your point, you brought up a good point. 50 days after getting here, after we bought the company, I had to shut it down because of COVID, so…
Kevin Kim:
Oh, that must have been fun.
Keith Lind:
Very fun.
Kevin Kim:
Oh man. All right, so the next question is, when you aren’t out there building this amazing non-QM and RTL business, what do you do in your spare time now that you’re here in California, in Newport Beach?
Keith Lind:
Yeah, I hang out with my family, we are water people, we have a small boat, so we’ll take that out on the water in Newport.
Kevin Kim:
Nice.
Keith Lind:
Newport Harbor’s beautiful.
Kevin Kim:
Oh yeah.
Keith Lind:
And then traveling up and down the West Coast has been great because coming from the East Coast, I really didn’t come here. I’d come here for work for a day or two and then fly out back to New York, but going up and down the Coast from San Diego up to Santa Barbara and going out to Palm Desert, it’s been great to learn and see the different areas.
Kevin Kim:
See all the different types of nature we have, right? Because we’ve got mountains, we got oceans-
Keith Lind:
It’s beautiful.
Kevin Kim:
… you got it, you name it, we got a desert, we got all of it, so that’s very cool because I love to hear that because California has so much to offer from that perspective.
Keith Lind:
That’s right.
Kevin Kim:
So much cool to see. All right, last question for you. Last question for you is going to be, what’s one business tool that you cannot live without?
Keith Lind:
It’s got to be my Bloomberg Terminal, which just-
Kevin Kim:
Okay.
Keith Lind:
… provides me massive amounts of information, data, and knowledge. It’s not cheap, you can sign up for Bloomberg, but the amount of information that I’m able to digest and retain throughout the day, it’s instrumental because again, it starts… sounds cheesy, but our business is sort of, it’s the beginning of what affects a lot of things throughout the world.
Kevin Kim:
Mm-hmm.
Keith Lind:
So meaning when interest rates are going up and mortgage rates go up, that’s affecting everyone’s daily lives.
Kevin Kim:
Yep.
Keith Lind:
And then from there it’s affecting corporations and spending, and so I think knowing what we do following the markets and just having access to information, I can’t… I have a level of ADD where I got to keep doing something.
Kevin Kim:
Mm-hmm.
Keith Lind:
And for me it’s reading articles and catching up on what’s going on.
Kevin Kim:
I love that. Yeah, I mean that’s a first for the show. And I don’t think a lot of our guests have had Bloomberg Terminals, but the ones that have access to them didn’t say it, so I love that. First for the show but it’s very cool. I’ve actually had the pleasure of working a Bloomberg Terminal when I worked at The Commission, and that thing is hard to use, so kudos to you.
Keith Lind:
Once you get used to it, it’s like riding a bike, it’s really-
Kevin Kim:
Oh, I did not know how to use it, I basically spent probably a week on it and they figured, “Oh yeah, you’re young, you can figure it out.” No. All right. Well I think that’s all the time we have for this episode of Lender Lounge. Keith, thank you so much for joining us on the show and hopefully we’ll have you back live and in person, because I know you’re-
Keith Lind:
Yeah.
Kevin Kim:
… moving, your office is moving to Irvine, so we should definitely do one live. And for all of you listeners out there, we’ll see where we land in this market, but I think all things being equal, this industry still has a lot of tailwinds behind us, so good luck to everybody. This is Kevin Kim for Lender Lounge signing off, thank you very much.
Thanks for listening to Lender Lounge with Kevin Kim. I hope you’ve enjoyed this episode as much as I did. If you did enjoy, please leave us a five-star review on your podcast platform and be sure to follow our show to be notified of new episodes. If you’re on YouTube, don’t forget to smash that like button and hit subscribe for more content from all of us here at Geraci. Lender Lounge with Kevin Kim is available on all podcast platforms. Referrals really help us spread the word, so please send this over to someone you think might enjoy it. See you next time, this is Kevin Kim, signing off.
