What options does an aspiring homebuyer or investor have who cannot meet the stringent qualification criteria for a conventional loan? For many entrepreneurs and small businesses, obtaining the requisite capital to grow and scale their operations is a seemingly insurmountable hurdle. Luckily, Acra Lending offers flexible and innovative Non-QM capital solutions to bridge the significant funding gap left by traditional banks following the implementation of the updated QM lending regulations by the Consumer Financial Protection Bureau (CFPB) following the Great Recession of 2007.
Originate Report recently had the opportunity to speak with Keith Lind, Chief Executive Officer (CEO) of Acra Lending, to learn more about the exponential rise of Non-QM financing and the key role that Acra plays in facilitating access to capital for investors.
The Genesis of Acra Lending
Assisting lenders in realizing their clients’ acquisition and investment objectives through Non-QM mortgage solutions was the primary motivation behind the genesis of Acra Lending. Initially specializing in alternative income products—to include bank statements, asset depletion, and verification programs—Acra Lending’s initiatives have gradually evolved over time to incorporate fixed and adjustable-rate mortgages (ARMs) for residential assets on both owner-occupied and non-owner-occupied contexts. Acra Lending is licensed by the National Mortgage Licensing System (NMLS) and offers comprehensive programs and services via four distinct verticals: Wholesale Lending, Consumer Direct Lending, Investor Lending, and Correspondent Lending. Acra has garnered an industry-wide reputation for responsible lending methods, developing innovative solutions to emergent market issues and unparalleled customer service.
Private lenders presently represent approximately 15% of the entire mortgage industry, having expanded their presence in the space to meet the growing demand from investors and high-equity borrowers who are forced to pivot from traditional bank financing that lacks the requisite efficiency and customization options needed to grow and expand their businesses. “The private lending space is regulated just like the agency space,” Lind said. “A high percentage of the time, we can find a solution for our borrowers. We can look outside of our guidelines and find solutions for very difficult situations.” Acra Lending has established itself as one of the premier Non-QM lending organizations on a national scale, actively operating in 43 states through a strategically planned network of offices in nine states spanning coast to coast.
The Emergence of Non-QM Funding
Within the mortgage-financing niche, there is a unique product category that is effectively identified by what it is decidedly not: non-qualified mortgages (Non-QM). Non-QM loans are also known as non-prime, non-agency, or alternative-documentation loans. The world of Non-QM single-family mortgage offerings is diverse and challenging to succinctly define, but understanding these products is essential. A substantial percentage of borrowers in the Non-QM space comprise the backbone of the national economy, including those who are self-employed and the savvy entrepreneurs who purchase single-family investment assets. These individuals, however, often encounter a roadblock when it comes to qualifying for financing using traditional documentation such as proof of income, forcing them to utilize alternative documentation like bank statements, assets, or debt-service coverage ratios (DSCR).
The demand for Non-QM loans, particularly in the secondary marketplace, has grown substantially over the past year. Many industry experts are forecasting that this trend will continue, subsequently fueling the expansion of private label securitizations for the foreseeable future. Should the Non-QM private-label market hit the $40 billion mark as some are now predicting, that still only accounts for a mere fraction of the market’s loan-origination maximum—as the current market size is estimated to be somewhere in the region of $175 to $200 billion.
Non-QM loans are also advantageous to borrowers experiencing credit challenges, including recent bankruptcy or less-than-ideal credit scores. The loans may entail interest only, longer terms, or similarly creative repayment options specifically tailored to reduce monthly installments on the front end of the mortgage—typically to refinance or sell the property in the short-term.
The good news is that the latest iterations of Non-QM mortgages are not a repeat of subprime loans, which were the volatile, loosely underwritten mortgages that prompted the downfall of the housing market in 2007. Lind points out that lenders need to be meticulous with their underwriting process with an increasing number of brokers being drawn to the Non-QM marketplace as the refi market is forecasted to dip by as much as 60% over the coming months. “Acra employs a thorough internal vetting process of all brokers,” he explained. “Unlicensed brokers have an increasing presence in the industry, and they may lack a certain knowledge base or leverage capacity. We conduct an exhaustive due diligence analysis to ensure the best end product for our customers.” Acra’s offering of Non-QM/non-prime loans are upheld to a significantly higher standard when it comes to credit prerequisites, income, and asset thresholds, as they must comply with federal Ability to Repay regulations.
Comprehensive Suite of Innovative Lending Solutions
Acra Lending’s client base is comprised of high-equity clientele in addition to both beginner and experienced real estate investors looking for private funding options that traditional banks simply cannot offer. “A substantial portion of our clients are self-employed borrowers, and this has become the backbone of the Non-QM or private lending space after the CFPB and Dodd Frank implemented the ATR guardrails in 2014,” Lind noted. “More and more people are becoming entrepreneurs and work for themselves, which is a huge part of our business. We have seen it grow every year and expect this trend to continue.” An additional significant percentage of Acra Lending’s borrowers is sophisticated investors who are actively seeking negotiable private financing solutions. “Investors represent about 35 to 40 percent of our production,” Lind added.
Acra Lending offers a comprehensive range of funding programs, including solutions geared towards fix-and-flip and ground-up construction projects, as well as financing options for multifamily properties. “We have had great success in rolling out our fix-and-flip product. The average house in America is 40-years-old, and a lot of them need a facelift, so fix-and-flip is a vertical that we are very excited about, and we are looking at it as a lending space that is going to be around for a very long time,” Lind stated.
The Acra Lending team is now gearing up to develop innovative and flexible offerings in several other key market sectors, including negotiating private financing for investors planning to acquire small-balance multifamily property assets comprised of five to twenty-nine units. Lind and his team are also actively looking to play a central role in addressing the ongoing housing shortage issues plaguing major markets across the nation by working with savvy investors in the ground-up construction space.
Plans to Scale & Grow Acra Lending
Based on the numbers alone, Lind and the rest of the Acra Lending leadership certainly are doing something right. “We did a little over $2 billion in 2021 and are projecting $2.5 billion plus of originations in 2022,” Lind explained. “From November 2021 to January 2022, we are up 23% in the number of loans funded.” The lender has also increased its staff from 200 employees in 2020 to more than 350 today. Lind intends to add top-tier talent to the already outstanding Acra Lending workforce to continue delivering unparalleled customer service.
It is likely Acra will need the extra manpower given the recent uptick in interest rates—a trend that is expected to continue for the foreseeable future—creating the perfect marketplace for increased Non-QM lending demand. “Consider all the mortgage brokers last year that did not consider Non-QM as an option and solely focused on agency and jumbo loan products because they were the low-hanging fruit,” Lind observed. “Well, guess what? If rates go up, even just incrementally, those brokers will have to find new alternative products to focus on—namely, Non-QM loan options.”
Leveraging Wall Street Resources to Empower Main Street Investors
The Non-QM niche offers untapped potential for lenders looking to diversify their offerings. “Liquidity is extremely important when you are a lender and is the number one thing that comes to mind,” Lind advised. “Having strong capital partners is also extremely important, whether it is our institutional partners who purchase our loans or capital partners [banks] that finance our business. We partner with money-center banks and capital providers.” These key partnerships with multinational capital backers were essential for Acra’s stability during the COVID-19 pandemic. Lind worked on Wall Street with several of these major
These key partnerships with multinational capital backers were essential for Acra’s stability during the COVID-19 pandemic. Lind worked on Wall Street with several of these major financial players and leveraged these relationships to ensure Acra maintained unfettered access to capital to sustain lending operations regardless of the less-than-ideal external market factors that forced competitors to shutter their operations. “Working with major financial institutions provide us the resources and working capital to adapt to a comprehensive range of products,” he mentioned. “This provides Acra with an enviable degree of flexibility when it comes to pivoting and adapting to emergent trends—allowing us to do so more quickly than the competition and respond to our client’s needs efficiently.”
The forecasted dip in the refi marketplace will only provide further fuel to accelerate the already exponential growth in the private lending world. “There is a huge tailwind for us,” Lind commented. “My prediction is that the private lending space is going to have a very good stretch, not only for the remainder of 2022, but for many years in the future.” The statistics certainly support this optimistic perspective, as Lind pointed out: “In the pre-Covid era, around 12% of homes in 2019 were acquired by investors. That number jumped to more than 25% this past year and the majority of these investors are ‘mom and pop’ entrepreneurs who are ideally positioned for Non-QM funding options.”
One thing is certain: there is undeniable opportunity in the Non-QM sector, and Acra Lending is ideally positioned to service this increasingly popular alternative financing solution. For more information about Acra Lending and its products, please visit: https://acralending.com NMLS ID #144549