Welcome to Episode 1 of #AskAPrivateLender Podcast brought to you by Mortgage Automator. In this episode, we interview James Grantis, Vice President with Hosper Mortgage Investment Corporation, located in Toronto. James leads the Hosper Mortgage Team which matches prospective investors with suitable mortgage investments.
We talk about Hosper’s preferred deals, how private lending is surprisingly similar to dating, and why you might need to break up with an investor. As a bonus, James shared with us his favorite pizza place that’s an absolute must-visit if you ever come through the Niagara region.
Listen to or read the interview below. We hope you’ll enjoy it!
Lawrence: Private lending is not really a job that people jump into. It’s not like you go to school and decide that you’re going to start a private lending company. Were you exposed to the mortgage business originally, and that got you in the door to become a private lender?
James: I sort of fell backwards into it. I think, most people who end up in private lending or mortgages probably had an unconventional path. I had a more conventional start. After university and getting a finance economics degree, I worked for TD bank and was in a commercial banking role. One thing I really enjoyed about that role was dealing with my business-owning clients, especially those that had a very interesting business.
So I ended up building a relationship with one of my clients who was a Chinese entrepreneur. She had businesses in Beijing and Toronto. One day she called me and just asked, “What does TD pay you?” She’s a very direct lady. So I decided to leave TD and start working with her. At that point, the business that we were working on was more informal, not a MIC or a licensed administrator. So that was the backwards fall number one that got me into the business.
Then, having spent time in the business and learning about it, I was fortunate enough to fall backwards again, meeting by chance the guys that I work with now. We started Hosper Mortgage together, first as an administrator. Since then we’ve launched our MIC as well. I think it just aligned with the things I like to do—working with lenders and working on mortgage deals.
Joseph: So you went from TD straight to private lending. You didn’t even enter the B business market. A lot of people see the A market then the B market, and organically it trickles into the privates. Was it a big shock for you to see how different things were being done from the banking sector to privates?
James: I wouldn’t even say it was a shock because it was so new. Before meeting this individual, I didn’t even know that this private market existed. I started talking to my friends and didn’t even know how to explain it. My partners all went through a more traditional broker upbringing if you will.
My role is predominantly on the investor side. Of course, over the years I’ve built an understanding of how to broker a deal, and what the difference is between a B deal, an A deal, and a private deal. But my focus is primarily, once the deal has been brokered and gone through our underwriting team, then it comes to me and I’m looking at it as an investment.
I had my little foray into trying to trade stocks. One of the most valuable things that ever happened to me was that I lost money on this. During my time in the university, it was a very significant amount of money for me. I got a stock tip from a friend who knew what he was doing.
The stock went up, but there was no instruction when to sell. I just held it until basically it was worth about 20 cents on what I bought it at. I don’t regret that at all because it really taught me that investing is not just about somebody’s risk tolerance on paper, but it’s also an emotional thing.
I’m the annoying guy at a baseball game who doesn’t hit home runs but hits singles because, statistically, I get to the first base and get more runs. That’s how I think about investing. I don’t really invest home run stuff anymore because I learned my lesson. If I can be very constant and see the income just trickle in, which is the type of income that is generated by mortgage investments or investments in MIC, that’s more appealing to me.
Lawrence: I find that in the private mortgage space, people know the company names. They know Hosper. But they might not know James. I’m talking from a broker’s or even a borrower’s perspective. Tell us a bit about yourself. Where are you from? Do you have any brothers or sisters?
James: I was born and raised in Niagara, Ontario, near the border at Niagara-on-the-Lake and St Catharines. Went to school at Laurier which is a great stop in Waterloo. I’ve been in Toronto for the past eight years. Our office is at Yonge and St Clair, but right now we’re working remotely.
I have a younger brother who works for a barter exchange company called Barter Pay. They have a really cool network that allows businesses to use their unused resources or inventory, or time to barter with other companies on the network.
Lawrence: At Hosper, do you guys deal with brokers? Just so people out there know how they can get deals to you.
James: We deal through brokers exclusively. We have over 50 different brokerages sending us deals, so we just made a conscious decision to make that our only channel. The brokers that do send us deals don’t have to worry that we’re going to take their client or deal with that client directly the next year. When we do get referrals, we offer a shortlist of the brokers that send us deals and recommend the ones that we find are good to deal with to direct referrals.
Joseph: It’s a really interesting point because in the institutional space, when a broker sends a deal to a bank, once they’ve introduced that client to the bank, they’ll never see that client again. The bank offers them all kinds of products. The broker made their bps and moved on.
I respect you guys so much for the fact that you’re looking out for the brokers, making sure that the broker gets their repeat business. It’s probably why you get that repeat business, why brokers can trust you that you’re not going to approach their clients.
James: That’s become one of the critical pillars of our business. People in the industry know that there are different types of broker models. We love the broker model where that client sticks with that broker. This means if there’s a missed payment, we want the broker that’s willing to also be CC:d on that email so they’re aware. We want that broker that’s willing to know that if the client wants to renew, they’re going to assist with the renewal.
The clients are the broker’s relationship, and whatever we do is a reflection of the broker, not Hosper. The broker is the one that’s putting the Hosper paperwork in front of them to sign. But when that borrower a year later is thinking about the loan they had or the experience they had with one of our customer service staff, they’re not going to remember Hosper Mortgage, they’re going to remember the broker they signed the deal with. We understand that we’re an extension of the broker, so the good things we do are a positive reflection on the broker. This has been a critically important thing to understand as a lender.
Lawrence: How would a broker get in touch with you? And what do they need to provide you to submit a deal?
James: Adriano Morriello and Jerry Wieliczko are two of our BDMs. They have relationships with almost all if not all brokers at this point. If they don’t have a relationship with the brokers listening, I would love to have them reach out to us and get one of our BDMs to introduce Hosper formally and figure out how we can fit your need as a broker to fill that gap.
We pride ourselves on the speed of response. If you submitted the deal and you provided the minimum materials that you need (we’re receiving our deals through Filogix at this point), we can get a quote to you within a few hours. If there’s a complicated deal or you’re waiting on a few documents, or you have a deal that you want to just get a sense of, then I would encourage a broker to contact one of our BDMs.
From there, we’ll follow the formal process because it works, so there’s no point to reinvent the wheel. And that’s something that Mortgage Automator has been tremendously helpful with, getting that process streamlined. We were of the old school, just getting all the documents submitted over email the first four years of doing this business. We would explain to the brokers what attachments they need to send.
But as the listeners may know, that’s been changing. Now all deals have to be submitted formally through Filogix. We have to make sure that we are properly credentialed as an Equifax recipient. And all the deals are coming in smoothly because they’re all immediately onboarded to the Mortgage Automator platform that we’re familiar with using.
Lawrence: You didn’t have to bring up Mortgage Automator, but I appreciate it. In the case of private mortgages, just like with any other industry, there’s a potential for fraud. Have you guys ever been in a situation where something just didn’t smell right? Maybe you didn’t go through with the loan or maybe you did, and there was an issue that ended up being rectified?
James: Fortunately, and I hope this trend continues, we’ve never incurred a loss and never had to make a Title insurance claim. But we have had to pull a few plugs on deals. And when you do that, you can never say 100% that was a fraud. There’s never been an accusation like that, but we’ve certainly backed out of deals. One thing that we’ve tried to do with our business as a lender is to make every deal follow a consistent process. Of course, every deal is different, but when you keep that consistent process, it makes the oddities really jump out at you more.
Joseph: I know, it’s never an easy conversation to have with someone who’s referring business to you. You’ve got a guy who is sending you deals, and now you’ve got to pull out of a deal. It’s a breakup call.
James: Breakup call is a good term for it, but I don’t know if that’s exactly the case. We still want to have relationships with these brokers. The breakup call is when you find out that a broker is non-compliant, they might be asking you to pay them under the table, pay them in cash, or not to tell their principal broker. That’s when it’s time for a breakup call, ”it’s not you, it’s me but, actually, it’s you.”
Most of the brokers we deal with are big boys and girls, they don’t want the stain on their reputation the same way that we don’t want the headache backing out of a deal. So, usually, we just level with them. We don’t try to dance around it and find loopholes to get out. I think that just hurts a reputation more than acting like a prudent lender and tell them what’s the issue, and ask them how they would like to solve it. Then it makes it a shared responsibility and changes the narrative a bit.
Joseph: There’s always going to be a give and take where you rely on the broker to send you that business, you’ve built that relationship with them. How much onus should be on them to do proper due diligence on the consumers so that you don’t have to cancel deals? If they asked certain questions ahead of time, could this issue have been completely averted?
Or is the attitude today “I’m just gonna send this to my private, he’s a private for a reason. They understand the risk that comes with these deals.” Do you think brokers should ask more questions from the consumers, given that it’s not the industry it used to be 10 years ago?
James: Let’s put it this way, I would never say to a broker that it’s their fault because they didn’t do more underwriting. Going back to the conversation about the clients being the broker’s clients, we really view it as a food chain. Without the broker incurring all the marketing costs and doing all the work that they do to get the deals, there would be nothing for us to lend on.
Certainly, the brokers that do that due diligence, that ask the thoughtful questions, they’re the ones that are killing it. They’re the ones that always have files on the go, and they’re the ones that we do the most business with.
At the end of the day, just like we have our own business model and our own preferences as a lender, our own way of doing things, so do brokers. If every brokerage builds their own business doing the proper due diligence, it’s not only going to make lenders like them more, but it’s also going to save them from spending time and money on deals that end up getting canceled.
Lawrence: People in the lending business are managing investors’ money. Sometimes, it’s an investor that’s giving the last 100,000, sometimes an investor has 10-20 million. They’re relying on you to let them know if a deal is a good investment.
I would hope that people in your shoes understand money. And I would imagine you do because it’s very hard to have a successful lending business when you don’t understand what money can do. Growing up, was financial literacy taught to you by your parents? Was it something that you just learned as you went? How did you figure everything out?
James: It kind of just clicked for me. I was always very frugal as a kid, I always saved because that was ingrained in me. When it comes to financial literacy, it’s actually a really important mission of mine. I have a strong passion for financial literacy. I’ve worked with high school and elementary school students, I’ve done formal programs with Junior Achievement and Money Matters programs going into the schools. I’ve also done some informal ones with a program called Hosper Helps that we’re working to get started.
Money management or money mismanagement is a critically undereducated topic. You can see that on the side of lenders that don’t really understand what they’re doing, and you can see that on the side of borrowers that get themselves into situations where they get themselves buried.
Lawrence: I completely agree with you. Although I saw recently that they’re introducing some new courses in schools to help people understand financial literacy. In the past, nothing was taught in school regarding any of that stuff. When you go to university, the credit card companies put their booths outside getting you to apply.
People who have learned nothing about any of this are starting off on the wrong foot by getting that credit card spending and not understanding that you have to pay that credit card off every month. So this is definitely interesting. And the organization that you’re putting together is called Hosper Helps, was it?
James: Yes, Hosper Helps. This is just an idea. We have many affluent investor clients who probably have information to share. They also have kids that are ready to become adults of their own. We also have a portfolio of borrower clients who maybe have gone through a life event or could use some advice along with the loan to start the path to recovery or to growth, or whatever it is, everyone’s situation is different.
Lawrence: This actually leads me to my next question. Over the years, running a private mortgage business, I’m sure you deal with a lot of financially savvy people. Is there any money-related advice that any of them have given you along the way that you could share?
James: People who have made a lot of money and have had successful businesses or careers realize that it doesn’t do you a lot of good to hum and haw on a decision for three days only to make a yes decision in the end. So certainly, there are times when you should sleep on a decision, but I’m impressed with the really wealthy and successful individuals that I work with.
They’re confident enough once all the pieces are in place to be able to make those quick decisions and then move on with their life. That’s how they’re able to run so many businesses or do so many things because they can be decisive. This decisiveness is something I am trying to kind of internalize so when I face a decision, I just want to make it and be content with it. It doesn’t have that mental baggage.
Joseph: The people you’re dealing with are accredited investors. They’ve done this before, they know what’s going on, they’re comfortable in that space, and they’re able to make those decisions. It’s the smaller investors that are just dipping their toes, trying to get into that space, are the ones that are most nervous.
If this is your last 50,000 dollars, you probably shouldn’t do something like this. If you’re going to be very nervous and uncomfortable the whole time, it’s going to be difficult for you to deal with. It’s nice to pick up the phone, call a guy and the guy says “I’m good to go with half a million bucks,” and the deal’s done.
James: I totally agree with you. At the end of the day, we’re selling trust. As smart and savvy as our customers are, you can’t be an expert in everything. We have a team of X amount of people working on one loan. They do this all day every day, are you really going to be able to navigate alone better than us?
That would be another thing that I’ve realized—you have to align yourself with experts. I fit a niche for many of my clients. I’m not their holistic investment advisor, but I’m probably their go-to guy as far as mortgage investments and, by extension, maybe mortgage advice. Likewise, for myself, I don’t try to be an expert in everything, I just have an expert in everything.
Another one that I would be remiss not to mention that always gets me too is that the people that come to a meeting and present wealth are generally not the ones that have significant wealth. I find it’s the individuals that are understated and are very easy-going, that don’t try to portray anything, they have the largest portfolio with us.
I’ve spoken to people on the phone that made me feel very small. They’re the big shot, and I did something wrong. And then I’ll speak with people with many many many zeros that will talk to me like a peer. So if you’re dealing with people, try to treat everyone like that.
Joseph: James, I’m gonna put you on the spot here. Have you ever told an investor you don’t want to work with them because you guys didn’t see eye to eye?
James: Yes. As our company has grown, I’ve started to realize the incremental benefit of having these people in your network. All deals will get funded, so do I really want to give the deal to someone who’s going to be breaking my balls and making me feel uncomfortable? I’m generally trying never to burn any bridges, but I certainly will stop sending deals.
When they reach out to ask about the new deals, that’s when I like to subtly present the issue to give them some time to think about it. I like to say, “Thanks for reaching out, I appreciate it, but the reason that I haven’t been able to find any deals for you is because, if you remember, on our last deal this was an issue and that was an issue, and we didn’t exactly see eye to eye on that.”
I lay the cards on the table and explain that these are the things that I can’t budge on. So if they are willing to try without those issues, see past that, then we can try again. So maybe give someone a second chance but generally never a third.
Lawrence: Usually it’s ingrained in them, they can’t help themselves. They have to be the way they are, and that’s okay.
James: This is not a story of when you got to break up with a girlfriend or a boyfriend, but a story of when you go back to the girl or the guy that you said you would never go back to. That’s what it feels like when you get that lender that’s jerking you around. They always made your life hell, but they have boatloads to cash, so they dangle that in front of you, saying they’re ready to do more deals.
This is what I’m trying to get better at. My lawyer would say to me, “You said that we’re never going back to that guy,” and then I would have to make excuses. It’s like your friend that’s keeping you accountable, asking why are you getting back with that ex. There’s a lot of parallels with dating and mortgage lending, who would have thought.
Lawrence: We do a segment called Would You Rather. It’s about the kinds of deals that you prefer. Do you guys like deals that are extremely low loan-to-value with no income and terrible credit, or would you rather a higher loan-to-value deal where the borrower has a great income and great credit?
James: The former. We’re an equity lender, so we’re looking at equity first, second, and third. We’ll look at credit and income fourth and fifth just to help put context the deal, but certainly, when faced with that decision, I would have picked the first one.
Lawrence: Would Hosper prefer to write one loan for a million dollars or ten $100,000 loans? Or does it not matter?
James: I would pick the ten $100,000 loans, that’s probably more of our niche. We’re good at closing deals quickly, so this scale of doing 10 loans is easy for us.
Joseph: You heard it here first, folks, James is not afraid of hard work, he doesn’t mind doing the 10 deals.
James: Yes, exactly. If the heavy lifting was done long ago that built the process that can facilitate ten deals without too much back-breaking, I think that’s the key.
Lawrence: Would you rather a first mortgage at 50% LTV with a lower interest rate, like 6.99%, or would you prefer the higher end, 70% LTV with that higher rate of return?
James: I’m sure every lender would probably look at both of those deals, but I’ll say, in Hosper’s niche, the 70% LTV deal we’ll quote that all day long. 8-9%, that’s probably a deal that Hosper is doing all the time.
Lawrence: So you’d prefer to go to the higher LTV that you still feel comfortable with to get that higher return for your investors as opposed to taking a really safe 25% LTV deal, but you got to cut back on your rate a lot?
James: I’m just going off of what we do a lot. We do a lot of those 70% deals all over Ontario that are probably going to be quoted at around 8.4%, 9.7%, 9.9%. We’re doing a lot more of those deals. 6.99% is our lowest pricing, we only do a handful of those deals a month.
Lawrence: As you know, the point of this podcast is to get the message across and let people know about Hosper. So, for the brokers who are listening, what’s Hosper looking for? What should they be sending you guys?
James: We’ll take a look at any residential deal across Ontario. We’re looking for a deal where the broker is looking for a one-year solution with a lender that’s going to keep them in the loop for that one year. We think of our deals as runways for a longer-term plan with that client. Many of the brokers that submit deals to us probably have a one year, then three or five-year plan with that client. At least the strongest brokers that we work with have that.
We want to be at the start of that plan. That could mean it’s a second mortgage, it could mean that it’s a client’s first mortgage, that could be because they want to pre-build and they now need to close. The institutional mortgage lending environment is different than they assumed it would be when they bought the pre-construction, or it could be a home that they’ve lived in for many years and they’re just looking to either regroup and take a one-year private to consolidate some debts, and then go back to the bank.
Right now our niche is certainly first and second residential mortgages, high LTV or low doesn’t matter. If you send it, we’ll give you a quote on the same day so you’ll have an answer without wasting too much time.
Lawrence: Sounds good! And that kind of brings us to the end of the episode. And I don’t know about you, but I’m a pizza guy. You’re from Niagara, where are we supposed to go there for pizza?
James: Hands down, there’s a spot in St Catharines, Lake and Lakeshore, called Bugsy’s. My last meal ever! Best wings, great pizza, a hundred different beers. If you drink all hundred beers, you get your name on the wall.
Joseph: I know you’re a golfer, and you’ve been playing around quite a bit. Bucket list, one course you haven’t played and you’re dying to play?
James: I would play Augusta National, that’s a no-brainer. The reason that makes it a dream course is because you’ve seen it on TV so many times. The closest thing I’ve had to that is playing Glen Abbey. Think what you will about the course, but playing it after having walked it watching the pros play it… I never played Glen Abbey until after I watched the Canadian Open there, and that was a semi-surreal experience because I just remember seeing the guys and where they hit. I think that’s what the dream course is, you’ve pictured it so many times and you’ve seen it on TV, and then you get to be there.
Lawrence: Awesome! So just to do a little recap: James Grantis, Hosper Mortgage. They’re looking for residential deals, they could be firsts or seconds, low or high LTV. Send them the deals, someone’s going to get back to you pretty fast!