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Residential Department: DataDecoded: September 2017

 

DataDecoded

Home flippers turn up the volume on financing

r_2017-09_data-decoded_chart.jpgFinancing for home flippers and other real estate investors has become the petri dish of innovation for loan origination and underwriting, with lessons learned from that lending lab starting to spread into the broader mortgage marketplace.

This culture of innovation has developed within the investor-lending environment because it has not been sterilized by strict government rules that promote plain vanilla loans — unlike the world of residential owner-occupied lending.

Loans for home flippers and rental- property investors are generally considered commercial loans, meaning that many of the lending rules introduced by the Dodd-Frank Act, and enforced by the Consumer Financial Protection Bureau, don’t apply — even if the property being purchased is residential.

Myriad startups have jumped into the fray of financing flippers and other real estate investors, from crowdfunding-oriented platforms such as RealtyMogul, RealtyShares and Patch of Land to more traditional loan-origination platforms such as Colony American Finance, Lima One Capital, LendingOne and LendingHome.

Although a number of these fintech-for-flipper startups may not survive for the long term, many of them are doing well in the current housing-market boom, which has been driven disproportionately by real estate investors and is attracting more and more mom-and-pop real estate investors, who are more likely to need financing.

Financing provided to home flippers reached a more than nine-year high in first-quarter 2017, according to the Attom Data Solutions U.S. Home Flipping Report. An estimated $3.5 billion in loan originations went to real estate investors who completed a home flip during this past first quarter, up 7 percent from $3.3 billion in the previous quarter. This past first quarter is the highest level since fourth-quarter 2007 and up 45 percent from $2.4 billion year over year.

More than one-third of all homes flipped in this past first quarter were purchased with financing, the highest share since fourth-quarter 2008. A segmentation of flippers by the number of homes flipped during the quarter revealed that a higher percentage of “mom-and-pop” flippers who flipped just one home during this past first quarter are relying on financing.

Dubbed the Home Flipping Pyramid by Attom, this segmentation shows that 36.4 percent of mom-and-pop flippers — who accounted for 69 percent of all home flips during this past first quarter — used financing to purchase the properties they eventually flipped. That compares to 31 percent of mid-tier flippers (completing between two and nine home flips during the quarter); and just 17.3 percent of top-tier flippers (completing 10 or more home flips during the quarter).

LendingHome has emerged as one of the leaders in the home-flip financing space over the past few years, announcing in December 2016 that it had hit the impressive milestone of $1 billion in loan originations — after just 2 1/2 years in business. An Attom Data analysis of loans originated by LendingHome shows a meteoric rise — from none in 2013, to 289 in 2014, to 1,899 in 2015, to a total of 2,437 in 2016.

Not content to be a big fish in the relatively small pond of lending to real estate investors, LendingHome recently introduced a lending product designed specifically for first-time homebuyers. Expect to see more such announcements in the coming months and years as more startup lenders try to replicate on a broader scale the success they have had during an incubation period of financing home flippers.


 

Daren Blomquist is senior vice president at Attom Data Solutions. With Attom Data Solutions since 2001, he is the company’s primary media spokesperson and an expert on the housing market. Blomquist is executive editor of the company’s award-winning Housing News Report and creates comprehensive real estate reports cited by thousands of media outlets and referenced by numerous entities, from local real estate investment clubs to multinational corporations, universities and federal, state and local government agencies. Reach him at daren.blomquist@attomdata.com.

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