Welcome to the 5th episode of the #AskAPrivateLender Podcast brought to you by Mortgage Automator. In this episode, we got to talk to one of the people who were in the private lending industry before there was an industry. Jason Vyner, President, CEO & Co-Founder of New Haven Mortgage Corporation started in the business in 1983. So he has some stories to share!

We talked about lending in the 90s’, the previous market downturns and how they compare to the present day, how New Haven continues to maintain its competitive advantage over the decades, how they are dealing with the current crisis, how they choose their deals, and so much more!

Listen, watch, or read the interview below. And stay tuned for more episodes coming up!

 

 

Lawrence: Tell us about how you got involved in the private mortgage business. I would assume that when you originally started out, it was a much different industry. It’s not something that everyone knew about, that everyone invested in. You’re probably one of the pioneers in the industry. How did you come up with the idea? How did you get involved?

Jason: I don’t know if a lot of you know the history of New Haven Mortgage. My brother was the actual founder in 1981. We were called First Place Financial at the time, and there were licensing issues, so we evolved into New Haven Mortgage. And when I say issues, it was just a transformation from First Place Financial to New Haven Mortgage in 1994. But my brother started in 1981, and I joined in 1983. 

We evolved from just being an agent and brokerage into an equity lender. Since that time, we’ve taken a lot of knocks and hits in the face, understanding the different markets from the last three or four decades, which has really evolved to where we are today. It was a long ride, and I’m happy to say that we’re in a very comfortable place right now.

Joseph: You started such a long time ago, and you’ve actually gone through all the different stages of the ups and downs that we’re familiar with. Lawrence and I, being a little bit younger, we don’t recall the 90’s. We’ve seen 08′, we’ve seen 17′, with the crazy spike and then the downturn. How were the 90’s when you were lending money privately? I want to hear about this because that’s something that we never really got an understanding of.

Jason: We grow experiencing the good, the bad, and the ugly. In 1989, the recession hit hard, but we didn’t realize the effects until 1990, which is comparable today to our Covid situation. We just don’t know where we’re going. We’re fearing for the worst and hoping for the best. Meaning that I don’t think that it’s taking its toll right now, Covid. People are relying on CERB and savings, and those are going to run out. And my fear is in the next few months ahead, it’s exactly what happened in the nineties. It stagnated for the next three or four years thereafter.

Equity positions came down quite a considerable amount, when a house was worth a million dollars, back down to $750,000, there was no room for refinancing. The deals were very few and far between and selective. It was quite a five year period, unless you sustained lower volumes, and understood that the market is cyclical and historically would rebound. It eventually did, and we’ve been motoring along very nicely from the next 15 years on. And here we are today with a major wall in front of us.

Joseph: I know the interest rates that private lenders charge today. 10%-12% for your typical second mortgage. Eight to nine and a half on your first. Maybe a little bit lower depending on loan-to-value. We also knew what banks charged back in the ’90s for interest rates. What were private mortgages charging back in the day?

Jason: Oh wow, we saw first mortgages from 12 to 14%, one-year terms with two, three, four-point lenders fees. And forget about brokerage involved. The bank rates at one time or another, if I remember correctly, were 11-12% on one-year terms. These days, we’ve been pretty consistent with our rates, and we’ve just actually moved our rates down considerably from our matrix standpoint. No more “froms” and approximates. We’re really targeting bank posting rates so the brokers can navigate with their borrowers prior to a deal coming in, not after. If you quote somebody 8.2% and all of a sudden it’s 9.3%, that’s not a very good taste in everybody’s mouth. 

So, it was a wild, wild West back in the nineties. Everybody was charging what they could get. Today, in this competitive world, and rightfully so, I think interest rates have been moderately coming down because of the competition, which is good for the industry, from the borrower’s aspect. And, as long as we all play nice in the sandbox, I think if we can maintain this lower interest model, the affordability will be there, especially with the months coming ahead of us in Covid times.

Lawrence: With the amount of competition now, it seems like everyone and their mother is a private lender today. You have a couple hundred thousand dollars in the bank. You’re going to lend it out. Maybe you don’t even know what you’re lending it out on, but you’re doing it because it’s popular. 

Touching on what you were saying previously, that you think that we’re not there in terms of what’s going to happen with Covid. Potentially prices will be going down in the future. Are you worried about these people jumping into a space where maybe they don’t have the expertise and that track record that someone like you has? Are you worried they don’t know what they’re doing?

Jason: Absolutely. I’ve recently experienced a private lender that came behind New Haven Mortgage, on a second mortgage up to 90%. And this was back in 2017, where people were purchasing properties, let’s say, for a half a million dollars and new builds. And by the time 2017 came along, their property, before they closed, is now worth $800,000. So people were taking out $600,000 first mortgages. Only 75%, but 110% or 120% of the actual purchase price. So the borrowers already hit the 649 [the lottery] and no skin in the game. 

What happened in this particular situation was the exact same scenario. Escalated prices, somebody came in on the new value, today’s value, as opposed to the purchase value, and lent 90%. But this private individual had four mortgages of $100,000 in their small little portfolio, and everything was going good until it went bad. Until the client or the borrower could not pay, and they were bouncing checks left, right and center, went power of sale and had to keep us, New Haven Mortgage, current, as a second mortgagee’s responsibility is.

Unfortunately, he had no idea, the second mortgagee, that he had to keep us current. He didn’t understand that in order to take control of the deal, he would either keep us current or pay us out in its entirety to offset any interest rates and or legal costs involved in the transaction. What New Haven Mortgage did there was we understood the poor second mortgagee’s position, believe it or not. We reduced our 7.99% to 3.99% because we played nice in the sandbox. We did the power of sale scenario. We allowed him in the property to renovate, to get the values back up to where it should be. It was actually a very successful story. He only lost a minimal amount of money. He could have lost it all.

Being a mortgage lender, especially a private mortgage lender, unfortunately, they look at the price tag, the returns, the 8, 9, 10, 11% returns, especially if they’re in the second mortgage, but don’t understand the responsibilities of a second mortgage, and that they don’t understand that if there’s a loss, they get hit first, not a good equity position.

Joseph: When it was back in the eighties, early nineties, you guys were probably one of the only guys doing it, and a few other people that we know. What do you think was the turning point in the industry? When did you feel like there was that line that said ‘wow, private lending’s a good business, we should all start getting into it.’ 

Because I’ve been in the business myself for 16 years now, and I remember you guys. You probably don’t remember me back then, but I sent you and your brother a deal back in the day, as a mortgage broker. Now, I’ve been in the private business myself for eight years, but I’ve also seen a lot of transitions as a broker. When did you feel, as a private, that you saw the tipping point or the change?

Jason: It was one of our trade shows where I walked in after the setup and stopped dead in my tracks. The trade show consisted of three times, maybe even up to four times as many mom and pop private investors, MICs that just came out of nowhere. The competition did become fierce.

Unfortunately because of the competition, and the lack of compliance in the industry, I’ve been finding that a lot of the private lenders out there are not playing nice in the sandbox. And what I mean by that is a little bit of a bait and switch. I’m not targeting any one individual, but I’ve seen a lot of “froms” and approximates in pricing and fees. 

I don’t mind the competition. Competition is healthy. Competition allows for rates to be adjusted so there’s a fair shake. So we kind of tooted our own horn, so to speak, in the eighties and nineties because the competition wasn’t out there. It was a case by case, a rare situation, and we pegged our own interest rate without any resistance whatsoever.

Joseph: If you had money and someone was willing to write the deal, they were already happy. Now it’s a different environment.

Lawrence: I wasn’t in the industry even as far back as Joe. I remember Joe as a broker would tell me, I can get this guy a bank mortgage, 550 credit score, 95% loan-to-value from the bank. If he can get that done as a broker, what was left for a private mortgage lender back then? When the bank is writing everything, and they’re aggressive, what is the private mortgage lender getting? Was it a different type of business back then, as opposed to today, or?

Jason: Years ago, Central Guaranty Trust, Security Trust, Shoppers, they were all basically equity lenders at the time. For compliance purposes, they had to document their files. Self-employed income statements, credit bureaus were at 550, no problem. Their pricing had adjusted back then, and so did their fee mechanisms. 

So, really no different than where we kind of are today in the space. As New Haven Mortgage is truly an equity lender, we will take a peek at an income or credit scenario, but that’s not the weight. It’s all about marketability for us. I kind of look at each deal, if the client is not going to make their first payment, which is the bottom line, how do we get out? What’s our exit strategy? And that comes from locations…

Marketability is the name of the game. So, the keen eye is really concentrated on different areas, geographical areas in Ontario, especially New Haven. I’ll take a Kitchener property, let’s say, of 750,000 dollars. I’ll easily go to 80% on that product. However, a 1.5 million dollar property in Kitchener is a lot different than a 1.5 million dollar property in Toronto. So, our equity, our position will scale back. I will not go 80 percent. Maybe on a purchase. 

They’re putting cash in, skin in the game, there’s no VTVs or second mortgages behind us. They truly have money to put down on a purchase, they truly understood the terms and conditions that they’re getting into. They understand they’re paying 7% as opposed to 2%. Five percent difference on, let’s say, a million dollars is 50,000 dollars difference in interest, oh my. 

However, the person that’s applying, maybe making a half a million dollars in cash in their business. They’re not paying the government 250,000 dollars in income tax. Therefore, their net savings, instead of paying the government, is now $200,000, by paying $50,000 more in their mortgage. 

So, there’s a story behind the lending, which is also really important to us. To navigate through sustainability, and hopefully, that there is an exit strategy by refinancing at the end of our term and hoping that the brokers will navigate their borrower to the B space, and move him up the stepping ladder, so to speak. It’s similar. It’s very cyclical. It’s the same patterns that have gone on from decade to decade, just in a different format, as stress tests evolved and everything else.

Joseph: Yeah, back in the day Home Trust, Maple Trust, those guys would be able to write you a deal at 4-5%, maybe 5.5%, with a slightly bruised credit score and a story. Whereas today, there are some privates out there that are potentially writing stuff in the 5-6.5% range.

Lawrence: I think to Jason’s point, what he was trying to say is, it’s a lot of advertising. It’s a lot of smoke and mirrors, where people are coming out saying 5.1%, 6.1%. Maybe there’s a price on the way in, there’s a price on the way out. There are all sorts of fees and things attached.

Joseph: There’s a small print in the writing. You need to have triple-A credit. It needs to be 30% loan-to-value, and you have to give up your only child. I get it.

Lawrence: It sets a false expectation for brokers and borrowers to think that this stuff is actually available to them. And then they go to this so-called company or companies that are advertising this. They don’t get what they want. And then they go to New Haven. They say, “I can get it for that price over here”. And I guess the answer is, “Well, why aren’t you going there?”

Jason: Perfectly put. Then you should go there. But produce a commitment to me, and then we’ll either match or better it, as the competition has it. But there’s a bottom line here. Know your lender. It’s the bottom line. Know the provisions within the mortgage. Know what your borrower is getting into, NSF fee charges, enforcement charges, proceedings, and what have you. 

Know your investor, even with renewal fees, I’ve seen a lot of different types of renewal fees and origination fees of, let’s say, 2%, only to now charge 3-4%. 

I’ll give you an example. I did not fund a deal last month. There was a 60,000 dollar mortgage that was to be paid off. Do you have any idea what the discharge statement said? $142,000! Now, my math might be a little off. There were 80,000 dollars in power of sale fees, $200 day-inspection fees, $3,000 administration fees. There was a list as long as my arm and then some. And I refused to fund that deal, only to put the borrower into a further debt. And surprisingly enough, the independent legal representative was representing them and neve said “boo”.

Joseph: Obviously, in the private space, there’s a lot of relationship building. You’re sending business, more or less, to one or two of your main lenders first because you want to continue to establish that relationship. But then, those lenders are obviously not taking advantage of your clients when things go bad. The question now becomes though, does the ILR (independent legal representation) at some point have a fiduciary obligation to their client, who they’re representing? Say, “By the way, you realize if you screw up, you’