The San Jose residence had housed hoarders, its rooms crammed floor to ceiling with junk.
“It was in horrible condition, which is the way we like ’em,” said Jon Condrey, a house flipper. When Condrey bought the California rancher for $620,000 about 10 weeks ago, he used a new Internet marketplace called LendingHome.com to secure a $496,000 mortgage. He paid a steep interest rate: 10 percent.
But Condrey considered that decent for “hard money lending,” short-term loans where the value of the collateral outranks the borrower’s ability to repay. Condrey got the loan within days of filling out an online questionnaire and having his information verified. He’s now applying for LendingHome mortgages for two more fix-and-flip houses.
Advertisem*nt
Article continues below this ad
“Time is the enemy in our business,” said Condrey, who’s hustling to get the San Jose house on the market this week for $799,000. “LendingHome can move very, very quickly to get things done. They’ve automated a lot of the process.”
More For You
Why big banks are losing out to nonbank lenders in mortgages
S.F. area 2nd worst in country for housing creation
U.S. home sales rebound slightly in February
Why are so few homes for sale in the Bay Area?
San Francisco’s LendingHome, which has raised $109.3 million in venture backing, including a $70 million round this month, says setting up shop on the Internet will make issuing home loans simpler, faster and more transparent.
Its target population is investors who can’t get regular mortgages — and therefore it charges a premium. Right now it lends to only investors in single-family homes. LendingHome offers two options: fix-and-flip bridge loans at rates ranging from 7 to 17 percent for terms of six months or one year, or rental-property loans with rates ranging from 5 to 9 percent for 30-year fixed loans or 5/1 adjustable rate mortgages. Borrowers generally must put down 30 percent.
“If you qualify for a traditional bank loan, we recommend that,” said CEO and co-founder Matt Humphrey. “But there aren’t a lot of options for investment properties; it’s very challenging to get a loan. And there are a lot of folks who can’t qualify: Maybe they haven’t had the same job for two years, or they had a short sale six years ago. We think they should have access to the (mortgage) market.”
Advertisem*nt
Article continues below this ad
Humphrey said they are not the type of risky subprime loans that caused the mortgage meltdown. “Subprime was folks who should not have been extended credit,” he said. “That’s not the case. We make sure the rental properties can cash-flow” (meaning they bring in enough rent to cover mortgage, taxes, insurance and other expenses).
After a financial crisis, lending always tightens up, said Guy Cecala, publisher of Inside Mortgage Finance. “We’ve just gone through the biggest crisis in a lifetime, so underwriting is very tight right now,” he said. “It’s hard to get investor loans or loans for people who have credit issues, so there is an opportunity for private lenders to step in.” He named California’s Citadel Servicing Corp., which is lending around $100 million a month (12 times more than LendingHome), as a leading example. Citadel’s lending is called “non-prime” rather than “subprime.”
With double-digit interest rates, these companies’ loans are usually temporary solutions, Cecala said. People refinance out of them as soon as they can.
Cecala was dubious about the benefits of being an online marketplace, noting that everyone from big banks like Wells Fargo to Quicken lets people start the mortgage process online, but soon switches to phone support. (LendingHome also offers phone support after a borrower applies.)
People don’t pick a loan based on whether they can save a little time applying online, he said; they pick based on where they can get the best interest rate.
Advertisem*nt
Article continues below this ad
The capital for LendingHome’s mortgages comes from big institutional investors like hedge funds, university endowments and real estate investment trusts. Those large investors also buy the loans, while LendingHome handles servicing. It doesn’t discuss how it’s compensated, but those high interest rates leave plenty of money to split up.
In the past year, the company has originated $115 million in mortgages, or just shy of 700 loans. The average loan size is $160,000, although in California the average is $350,000. LendingHome operates in 13 states (Arizona, California, Colorado, Michigan, Nevada, North Carolina, Oregon, Tennessee, Texas, Georgia, Virginia, Washington and West Virginia) and plans a nationwide expansion this year.
Also on tap for later this year: Mortgages for owner-occupants. The company hasn’t worked out the details, but again will focus on those who can’t qualify for traditional home loans. It also plans to allow accredited investors (high net-worth individuals) to participate as lenders this year, with an option to fund an investment account with $10,000 and put in as little as $1,000 per investment.
Carolyn Said is a San Francisco Chronicle staff writer. E-mail: csaid@sfchronicle.com Twitter: @csaid
|Updated
Carolyn Said, an enterprise reporter for The San Francisco Chronicle, covers transformation: how society, business, culture, education and other institutions are changing. Her stories shed light on the human impact of sweeping trends. As a reporter at The Chronicle since 1997, she has also covered the on-demand industry, the foreclosure crisis, the dot-com rise and fall, the California energy crisis and the fallout from economic downturns.
She can be reached at csaid@sfchronicle.com.