Adult care clients & Non-QM: An opportunity to increase applications & funding

Fergal: [00:00:01] Hello, everyone, and welcome to today's webinar with Acra Lending, where brokers will be learning how to leverage non QM products for adult care clients. I'm Fergal McAlinden of Mortgage Professional America, and I'll be your host today for what promises to be an exciting look at a less known non QM product and one that could help brokers to substantially increase applications and find more loans. Just before we begin in earnest, a few housekeeping notes to run through. If you need any technical support during this webinar, please use the chat box as we have a team on hand to help you with any issues. We would also love to hear your feedback on the questions, so be sure to participate when prompted. And last but not least, this webinar recording will be made available to all attendees after the event. So if you have any distractions during the live feed, don't worry as you'll get another opportunity to watch it at the end of the presentation. There will also be a question and answer session, so be sure to type any questions you have into the corresponding Q&A box. And remember that the more feedback we get, the more we know about the issues you're facing with clients. So please engage with us today using the Q&A function. Now back to the subject matter at hand and Acra Lending's, non QM programs that are tailored exclusively for adult care home clients while non QM has become an increasingly popular outlet for intermediaries. Few are aware that adult care homes are also an ideal opportunity to increase applications and funding. This comes at an ideal time as many brokers are struggling with shrinking pipelines due to the huge fall in mortgage demand sparked by high interest rates and increasingly challenging economic conditions. You could say there's never been a better time for brokers to look at alternative non-agency mortgage programs. But you're probably thinking, what if I'd never originated a non QM loan? Well, they're far less complex of process than you might think. In this case, the advantages are that brokers treat these as residential rather than commercial loans. This is because the funding is often used to purchase or refinance an existing care home that was once a single family residence. The financial risk is also low as a loan to values are low, typically 75% for purchase and 70% for refinance. But with all that said, to show us how to capture more business by learning how to master these non QM programs, I'm delighted to introduce Ken Fox, vice president and regional sales manager at Acra Lending. Ken, who has more than seven years of experience in the non non-prime wholesale market, has built long lasting relationships with the top 1% of the originators. Having worked with clients as diverse as Toll Brothers Ryland, Beazer and Centex to add to that, he currently runs almost 100% approvals and 80% pull through. So again, without further ado, it is over to you. 

Ken: [00:02:48] Perfect. Thank you for the kind intro, Fergal. So I want to thank everybody for joining today. We'll be discussing how adult care clients are a great way to increase applications and fundings. Next slide, please. So why do brokers work with me? Fargo alluded to this a little bit. I've been doing subprime, non-prime, non. Whatever we call it these days for a lot of years. Worked with many builders like Fargo, talked about Toll Brothers Ryland, Beazer, Centex and 1% brokers. These are the folks that close hundreds of loans each year. Yes, you see these folks listed in Scotsman's guides as top performers. I think outside of the box, meaning I'm turning decline loans into approvals every week. I'm ridiculously passionate about my process and my clients. This is why I'm writing almost 100% approvals and currently about 80% pull through. Next slide, please. So I've covered a little bit about my background. I'll share why adult care clients are great for this market. Highlight some advantages, discuss how we get them qualified. I'll even give an example of when we recently closed and then as Fergal talked about, I'll open it up for Q&A. Next slide, please. So according to MPA, applications are down for the fourth month in a row, the lowest level we've seen since 1997. So what does this mean? It means competition for each loan available has increased dramatically. And if that's not enough, the market's probably going to get worse over the next few months before it gets better. Yes, last week was a glimmer of hope. Rates did drop. However. I was reading an article this morning that the feds did not respond to well, to rates actually going down last week rather than stabilizing or going up. So we're going to have to approach things differently than we have the past few years when loans were falling out of the sky. I met with an old client of mine about three weeks ago in Scottsdale. He's a one percenter. Ben Gottesman skied more than most. He's been through multiple cycles over the past 40 years. He said, Ken, if you're running five excuse me, 20 calls a day, make it 30. If you're doing five meetings a week, make it ten. If you're sitting behind your desk at home all day, get in your car, drive somewhere and see somebody. His sentiment is when it tightens up. In a cycle like this, it's back to the basics blocking and tackling. He said, Challenge yourself. Step outside of your comfort zone. It's amazing what you'll learn. And he said, if you're not careful, you may end up actually getting some extra business or finding a new stream of revenue that you never thought about before. Next slide, please. So when you think about your 2023 business strategy, how are you going to differentiate yourself and your brand? Are you going to fish where everybody else is fishing, where there's fierce competition? Or would you prefer to have a niche where no one's fishing just reeling one loan in after another? Next slide, please. So Dell care homes can be a great niche where you can differentiate yourself in your brand. I'll share why. Next slide. According to Business Insider, the 65 plus age group is growing rapidly. It's estimated that by 2024, home care will be about a $225 Billion market. Next slide, please. How much are assisted living costs today? Forbes States and average cost for assisted living is $3,628 per day in general, and assisted living facilities start at $5,000 per month. On the lower end, in 2021, Jen worked at a Cost to Care survey where it was found a private room can be more than $9,000 per month. So you can see assisted living is very expensive. Next slide, please. So let's pause and take a poll. Would you mind? Go ahead and sending that poll out, please. Okay, so what is the number one reason adult care clients are so attractive? A They are becoming popular. B They are cash cows. Or C, it's always nice to help our elders. I'll give everybody a moment to respond here. 

Fergal: [00:07:59] Okay, So we're just waiting for all the results to come in on that poll. Just give you a few seconds more. 

Ken: [00:08:11] All right. Next slide, please. So if you answered B yes, they are cash cows. We see an average of 4 to 8 rooms, 3000 to $8000 per room, depending on the metro. But let's say you have six rooms on average at $4,000 per room. It's $24,000 per month or $288,000 annually. So you can see adult care homes can be super lucrative. Next slide, please. Besides being lucrative, there are many other advantages. They're not as rate sensitive because they're looking at the big picture. Many of these borrowers have great credit, great asset profiles. And what's also nice is once they purchase one, they want to expand their portfolio over time so you can get multiple purchases and refinances for each client. And if that's not enough, they're like a hidden gem. Not many mortgage brokers focus on these clients. And by the way, if you're multilingual, you have a great advantage over other brokers that are not. Next slide, please. So what are the loan parameters for? You mentioned this up front. One, we go up to $2 million loan amounts without exception. By the way, here at Acra, sometimes we are able to get exceptions approved, if it makes sense. Here on the adult care homes. It's a purchase up to 75% LTV, refinance to 70% LTV, and we can go as low as 600 FICO scores. Next, next slide, please. So in my first conversation with a broker will usually start by looking at DSCR. If you haven't closed the DSCR loan, you might not know these are no income or employment verification loans. The borrower qualifies on the cash flow of the property. So you take the PITIA payment. That's principal interest, tax insurance and association of debt applies and you divide that by the 1007 rent schedule. That's what the appraiser provides here in this market with higher interest rate. If it's a smaller loan amount, like two, 300,000, maybe even lower LTV, we might be okay. On the DSCR on adult care homes, the cash flow ratio is used both for purchase and refis. So I'll typically ask, Hey, can we get rental comps from the realtor involved in the transaction here to kind of back into the numbers to see if the DSCR ratio can be 1 to 1, meaning the PITIA payment and 10-07 rent schedule are equal or greater. If we're close, we might look at 40 year interest only or a rate by down or sometimes we might even move to a five year prepay to get a 3/8 credit to be able to ratio here. We do have several options to make these work. What's also great is many times investors like to close multiple adult care loans at one time. Next slide, please. If DSCR won't work, I'll ask, is our borrower self employed? If so, how have we seen their bank statements yet? Depending on the monthly deposits, sometimes we need to use two or three sets of bank statements with higher rates, higher values, each with a separate business. If the debt to income ratio is still tight, we can add W-2 or Social Security or even pension income on top of the bank statements to qualify. Keep in mind, many of these are jumbo loans, so sometimes we have to throw in the kitchen sink to qualify. Next slide, please. So I give an example. When we just closed in Tucson, Arizona, the investor bought with hard money at 12% to secure the property. It was less than six months. We use two sets of bank statements again to separate businesses and even added W-2 income to qualify. The investor wanted to beat the competition on this purchase. Again, this was a few months back when the market was super hot in Arizona. So he made a cash offer and then shortly after was able to reduce his payment by moving to permanent financing. Next slide, please. So let's take another poll, if you wouldn't mind launching that poll, please. So I get this question a lot. Are adult care homes treated as commercial loans? True or false? I'll give everybody a moment to respond here. And next slide, please. So if you answered false, you were correct. Adult care homes are not treated as commercial loans. We treat them as a traditional non QM loan. Next slide, please. So last poll here, would you mind go ahead and sending this poll out. So is it important to ask if there are modifications on the property? True or false? Again, I'll give everybody a moment to respond here. Ok. Next slide, please. So it is absolutely true. It's very important to ask if there are any modifications on the property, like how many rooms, how many bathrooms is our commercial kitchen? Is there an electric chair going up the stairs? Basically, any modification that makes it different from a normal single family home. As a lender, we're looking at the property as if we had to take the property back. If so, what's the cost to get this property back to a normal single family selling state? Don't worry, we do lots of properties like this that have been modified. We just need to factor this in. So depending on what it is, if it's substantial, maybe reduce the LTV by five or 10%. It's just important to know these things to set the right expectations with the investor. Any modifications on the property, they are going to show up in the appraisal. We just don't want any surprises here. Next, the next slide, please. So key takeaways today. The market has shifted the past nine months. The harsh reality is the number of applications, number of loans has shrunk. If you're thinking about your 2023 business strategy, if you want a niche where you can differentiate yourself from the competition, adult care home clients can be a great strategy to increase applications in a rising rate environment. Adult care homes provide many advantages from a 3C perspective, so let's credit collateral capacity and Non QM is positioned well in this market to help adult care home investors build a great business model. Next slide, please. So just remember, you can get everything in life you want if you just help enough other people get what they want. One of my favorite quotes from Zig Zigler. Next slide, please. So at this time, I'll go ahead and open it up for questions. If you have a question, please enter that into the chat, please. 

Fergal: [00:16:01] Yeah, perfect. Thanks very much, Ken. As Ken mentioned, if you have any questions, please just put it into the chat right there. I guess one, Ken, that I had for you straight off the bat was just in terms of marketing of care homes to investors and realtors, whether there's a best way to do that. 

Ken: [00:16:17] You bet. So Acra actually makes it really easy for our clients. We have white label marketing where they can actually go and put their name, their contact information, their logo right on there. Obviously, it's catered to Acra's programs, but it's nothing specific about Acra, which is great. It's plug and play. It allows them to actually hit the street running with materials right off the bat. 

Fergal: [00:16:45] Great stuff. I see. Actually, a question has come in as well, Ken, just asking you to put your contact info back on the screen just so attendees can get in contact with you, if that's okay, or if you want to even just give out your details, whichever. 

Ken: [00:17:01] Absolutely. And I'll be sharing that in just a moment. 

Fergal: [00:17:03] No problem at all. So there's also a question coming in about what kind of inspections are required being an ALF. 

Ken: [00:17:11] So they do require ADA compliant and there's inspections. The nice thing about this is the folks that you work with, if they've been doing this, they typically are aware of those types of things and it's nothing new and easy for them to gather. If not, then it's really just an education piece. But aside from that, really, it's it's no different than a typical loan that we would do in non QM. 

Fergal: [00:17:39] One other question coming in here, Ken, is just about whether the investor has to be licensed by the state where the property is located. 

Ken: [00:17:46] So again, that's going to come down to each state and specifics there. I'm not a compliance expert, so that's something that they would need to research upfront. 

Fergal: [00:18:00] And how about on the DSCR ratio? That cannot be less than 1 to 1. 

Ken: [00:18:06] Absolutely. We do allow it to be less than one, 1 to 1. Things have changed, as we all know, over the last 9 to 10 months. So if we do that, we have to factor in maybe an LTB reduction, maybe an add to rate. So typically, I'm trying to get to a 1 to 1 ratio to make sure that everything's going to work for us. 

Fergal: [00:18:27] Okay, Nice. And what type of products and pricing range are you talking about fixed or ARM. 

Ken: [00:18:35] So typically, we're doing most of our loans on fixed. We do offer ARM's as well. However, there's no difference in pricing between a fixed and an ARM. So most of the time we are doing some type of fixed product. 

Fergal: [00:18:52] Sounds good. And just one final one for you. How many investment properties do you permit one investor to have? 

Ken: [00:19:00] That's a great question. This comes up a lot compared to more of an agency borrower. So we allow up to ten properties financed or not without exception. However, here at Acra it did allude to earlier. Sometimes we are able to get exceptions, so if it's a good borrower with compensating factors, good profile and depending on the overall loan to value on the loans that we're doing, sometimes we are able to make exceptions where they can have well over the the 20 total properties. 

Fergal: [00:19:32] And just a couple of further questions here that have come in Ken. Do the product by their fixer ARM all come with prepay penalties. 

Ken: [00:19:42] That's a great question. So absolutely, it's an investment property. The standard is typically a three year. As I alluded to earlier, you could actually go to a five year for a credit. You could start buying down or buying out just depending on what might make sense for their strategy. 

Fergal: [00:19:58] Okay. And we just have one viewer as well who was looking for a bit more insight into how compensation works, if you could take us through that. 

Ken: [00:20:07] So it would be typical compensation. I think this is a hard one to answer. You know, during a webinar, but it would follow the normal compensation that we that we offer in non QM. 

Fergal: [00:20:20] Okay. All right. Sounds good. Well, look. I think that's all for today and what's been a really fascinating webinar. Thanks to everyone for joining the discussion today and thanks to Ken Fox for a tremendous talk. We hope that we've addressed a lot of your questions today. And remember, you can always check out the additional resources to find out more. So on behalf of mortgage professional America and Acra lending, it's goodbye for me Fergal McAlinden. Take care and we'll see you next time. Have a great day, everybody. 

Ken: [00:20:51] Thank you, Fergal. Next slide, please. So it was asked for my contact information. It's right here on the screen. If there's any questions. I know there was a question about compensation. Happy to take that offline here. Or if there's anything else that I can help with, you feel free to to reach out and again, call text, email, bat signals in the sky. I'm here. Thank you guys, for your time today. And let's make it a great day. 

Fergal: [00:21:20] Sounds great. Thanks, Ken. Well, thanks to everyone for tuning in and for all your questions. We'll see you next time. Have a fantastic day.