Navigating the Private Lending Terrain – NPLA Meeting Recap

Authored by James Martin, VP of Operations at GoDocs

Default Interest Discussion and Survey

Initiating the discourse, Jeff Tennyson of Lima One Capital spearheaded a dialogue centered on default interest practices within the private lending domain. In recognition of the significance of this issue, the NPLA unveiled plans to conduct a comprehensive survey, gathering insights into how lenders approach default interest rules. The survey, aimed at providing valuable data, seeks to guide the industry in establishing best practices.

Moreover, the NPLA is actively contemplating the formulation of recommended protocols to address the challenges posed by default interest, a pivotal step in harmonizing industry responses to this multifaceted concern.

Combating Fraud: Technology Solutions

Jeff Fechter, CEO of HouseMax Funding, led the discussion on combating fraud within the lending process. HouseMax has been focused on identifying best practices to detect and prevent fraudulent activities. One issue that emerged was the use of fraudulent bank statements by borrowers.

Rather than relying solely on borrowers to provide accurate financial statements, HouseMax Funding has integrated Plaid into its process. This integration allows HouseMax to directly access real-time data from a borrower’s banking institutions, providing a comprehensive and up-to-date view of the borrower’s financial situation.By pulling data from the borrower’s accounts across different banking institutions, Plaid creates an aggregated statement that provides a holistic view of the borrower’s assets and liabilities. This approach effectively curbs the practice of churning deposits between various banks to inflate cash reserves artificially.

Although the cost of implementing such technology is substantial, the benefits of risk mitigation and operational efficiency make it a worthwhile investment.

Member Market Discussion: State of the Industry

Participants generally agreed that loan volumes have experienced a decline in comparison to the previous year. However, as the discussion progressed, notable nuances within this trend emerged.

Lou Forino of Gauntlet Funding offered a distinct perspective. He shared how their activities in purchase fix-and-flip faced a significant 40% downturn. This prompted his team to adopt innovative strategies to address the challenge, such as exploring new types of purchases, all while emphasizing the importance of maintaining substantial equity levels.

Justin Parker of RCN Capital reported a rise in loan volume but concurrently noted a decrease in overall loan balances. RCN’s overall strategy of staying patient in deal sourcing and being cautious of certain markets (e.g., due to rapid price appreciation in areas like California, Idaho, and Austin, TX) allows them to be on the offensive as the market finds its footing.

Product-wise, lenders reported a growing preference for buy-and-hold strategies and bridge/short-term refinancing. The industry has proven flexible, with DSCR deals making a comeback and fix-and-flip projects resurging.

Conclusion: Navigating Forward

In summation, the NPLA meeting served as a pivotal platform for insights into the evolving landscape of private lending. Deliberations spanning default interest, fraud mitigation, market trends, and risk management underscored the industry’s capacity for adaptability within a dynamic environment. The collaborative ethos of NPLA members, coupled with their resolute commitment to advancing best practices, underscores the association’s role in shaping the trajectory of private lending.

Author Bio:

GoDocs is an innovative leader in automated loan document generation, transforming the commercial lending process. With a fully cloud-based platform, GoDocs provides a flexible digital solution that makes commercial loans more cost-effective to document and faster to close, all while maintaining compliance in all 50 states. GoDocs is a Corporate Member of the NPLA.

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