TheMReport — News and strategies for the evolving mortgage marketplace.
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26 | M R EP O RT FEATURE ing market due to overregulation have been dire. Forced to buy homes with cash, or stay put and remodel, this lack of available financing has contributed to the current situation of low invento- ries and rising costs of housing. Have no fear. A marketplace is unfolding to fill the void in lending—creating an opportunity for future focused lenders: Private client lending. The Profile of a Private Client Comes in all Shapes, Sizes, and Circumstances H igh Income: Executives/ Athletes/Entertainers: When your home comes with a large price tag. Our private client advisors work closely with high income professionals to determine the best financing solution, lock in a preferred interest rate, and smooth the process to closing. Business Owner: Shareholders/ LLC Members/Enterprise Contract: Small and medium-sized enter- prises (SMEs) are the lifeline of our economy. We understand the needs of the self-employed and have developed programs for business owners that require no tax returns and rely solely on the cash flows and financial sound- ness of their enterprises. Asset Rich: Retirees/Trust Fund/ Foreign National: Financing for today's needs, without sacrificing tomorrow's goals. Whether it's renovating their home, consolidat- ing debt, or seizing a time sensi- tive business opportunity, asset rich borrowers can gain immedi- ate liquidity to act on opportu- nities without risk to invested holdings. Investor: Residential/Commercial: Building the wealth effect one rentable door at a time. A true investor product with rates closer to prime than hard money. Clients may use the cash flow from the property to qualify. No tax returns or credit verification required and no limit on financed properties. As non-QM began to enter the market, a significant innovation in credit evaluation was intro- duced. Commercial underwriting methods typically used only for evaluating high net-worth private banking clients were now avail- able to non-bank residential lend- ers. Private client profiles tend to be pre-tax income light and asset rich. In order to accommodate this situation, a more sophisticated approach to credit risk is applied using methods such as cash flow analysis on operating business income, asset utilization lending on qualified pledged assets, and cross collateralization to secure investor interest, along with many other sophisticated evaluation methods to determine credit risk. Economic Lifecycles: From Wealth Creation to Wealth Management A s we graduate from the academic lifecycle, we enter what is called the economic lifecycle. The economic lifecycle is made up of three graduating phases. The first economic sub-cy- cle is the "transition" phase from the academic to the economic and the beginning stages of career development. The second phase of the economic lifecycle is called the "wealth creation" phase. The third phase of the sub-cycle is called the "wealth preservation" phase. Many are fortunate enough to be classified as Mass Affluent and High NetWorth, yet are still not wealthy or liquid enough to be in the highly exclusive realm of Private Banking or Wealth Management phase (AUM). This is where Non- Bank Private Client Lending fills the void in the market. Recognizing that wealth happens in phases based on where one is in life is key to understanding why so few private banking clients exist. Non-Bank Private Client Lending unlocks the pent up demand shut out by regulations. This phase of the economic lifecycle is in the Wealth Creation cycle, and what's needed isn't private banking wealth manage- ment, but finance management for wealth creation. Private Client Lending Compliments the Professional Services Community P rivate client lending is syn- ergistic and complimentary to the needs of the professional services community. This includes everyone from luxury real estate agents, small to mid-market wealth managers and financial advisors, and estate and trust attorneys. By becoming referral partners with the professional services community, mortgage professionals experienced in the needs of sophisticated estates can help these small businesses grow their value proposition and areas of practice. Synergy with Wealth Advisors: Expand the total wealth manage- ment service offered for your accomplished clientele. The number of mass affluent and high net worth households is growing and so are the com- plexity of their needs. Consider private client lending as part of your comprehensive approach to wealth management. With private client lending solutions, you can go beyond helping clients protect and grow their wealth and start putting it to work. Partner with a private client lending expert with direct access to customized mortgage solutions, mitigating the need for your clients to contact a competitor for their financ- ing needs. Protect the assets that rightly belong within your business while you capture new assets. Synergy with Real Estate Professionals: Private client lending also helps Realtors grow their businesses by first recognizing root cause. The current less-than- stellar conditions are indicative of a lending problem, rather than a housing problem. The inventory exists; it's just locked up thanks to the strict regulations that keeps capable buyers and sellers out of the market. By partnering with Realtors, private client lend- ing advisors can help co-market awareness to the private client community they serve and help bundle services to those who are looking to re-enter the market. When the lending problem is solved, the housing issues will also be remedied, setting the entire industry in motion. Synergy with Estate Planning: The benefits of private client lend- ing also extend to estate plan- ning professionals. For example, consider a situation wherein an estate is being transitioned and the executor wishes to assume the loan or use the estate's assets for home financing, yet can't get past the tight regulations and strict requirements of ATR. By partner- ing with trust attorneys, private client advisors can help make the transition easier during a very uncertain time. Private Client Lending to Accommodate the New Economy W ith digitalization, self- employment is on the rise. Today, more than 15 million Americans are self-employed, with 27 million more reporting they plan to be (or hope to be) leaving traditional wage-earning jobs by the year 2020, which would bring the number to over 42 million. In addition to the growth of the gig economy, the mass affluent and high net-worth category is growing at an astounding pace. As long as restrictive regulations continue to obstruct conventional credit to accomplished and experi- enced homeowners, the opportu- nity for future focused mortgage professionals is enormous and growing daily. . Prior to founding PCMA, JOHN R. LYNCH co-founded and grew Secured Funding Corporation into the country's No. 1 largest privately held independent loan originator of subordinate lien financing and a category leader. He is recognized as a serial entrepreneur and origination expert with a passion for building disruptive companies and a track record of growing some of the most respected companies in the financial services industry.