Mark Ritter is the CEO of MBFS and Nu Direction Lending. Mark is an expert in all things credit union and small business lending, and the organizations he leads are designed to help credit unions fund more loans to real estate investors and small business owners in their communities.
In today’s episode we discuss the benefits of having a relationship and working with credit unions compared to banks when financing real estate transactions. We also discuss Mark’s insights into the current lending environment for real estate investors including interest rate and market trends, as well as the current state of the PPP loan forgiveness program and the new PPP loan program in 2021.
Lending with Credit Unions
Relationships are generally valued higher at credit unions. At a credit union, there personal touch and contact with people to help walk through the process. With banks, as they grow, individuals may not get that level of personal treatment.
For any federal credit union, by law, no prepayment penalties exist. By nature, CU's are financial cooperatives, and are generally fair. The fees and the terms are going to be reasonable. If the fees and terms aren't reasonable, individuals would modify or prepay with no penalty.
Credit unions don't leverage with Wall Street like banks do, so they're generally more flexible. There's no lending in a "box", or transactions and assets being packaged up and securitized.
Mark sees individual investors in all situations working with credit unions. Small single family homes, larger multifamily, very large commercial deals, and small businesses. A credit union could make sense for almost any situation. Being cooperative entities, credit unions work together significantly better than commercial banks do.
Current Lending Environment
"Every month we're setting record volume levels. Our delinquencies actually dropped since the beginning of the pandemic. It has been continuing to do well."
Mark is focusing on lending based on what's happening now.
"That historical look isn't quite as relevant as it once was. We want to know what's happening today. We're seeing still a lot of strong financials in the multifamily and residential spaces. Where we're seeing the most strength is outside of major metro areas."
Many small businesses have also boomed during this time. Demand for PPP is dropping off because small businesses can no longer qualify. A drop in revenue is required, and many small business just aren't seeing this revenue drop.
Rates are so low today that sellers are escalating the values of the assets. This leaves little wiggle room for errors. Cap rates are getting narrower and narrower. Eventually there will be a reset and things will normalize.
"People are turning it into an auction-type atmosphere to acquire properties."
Mark believes we will continue to see historically low rates for at least the next 3 years, if not more. He believes the unemployment rate is too precarious to skyrocket interest rates. B2B investment and unemployment rates drive the future of interest rates, and the Fed has said they won't tie interest rates to inflation.
Shopping patterns and business cycles have been changed, but consumption is still strong. Money was shifted from vacations to stay at home amenities and luxuries.
With recent legislative changes, the government is guiding individuals to open up new business. Many new businesses are financed through the SBA. This process is becoming very quick and easy, heavily incentivized.
The current status of the PPP program is that a new form has been issued for any PPP loan under $150K, and the loan can be forgiven if the form is submitted to the lender. Loans under $150K are the vast majority, and individuals have until October to receive forgiveness.
Changes in legislation relating to PPP have continued because the government has been figuring this out in real time as we go along.
For the larger loans, more documentation is required for how the funds were spent. Many of the forgiveness on these larger loans are getting flagged and investigated.
Currently, PPP lending will continue until the end of March.
Learn more about Mark and his work on LinkedIn or at https://mbfs.org/