The Impact of Covid-19 on the Real Estate Lending Industry

This past March, Covid-19 rocked the lending industry in an unprecedented way.

In our latest video series, CRO of RFG, John Santilli talks to Joseph Scorese from Smart Real Estate Podcast where they explore what is going on in the investment lending world, and give an update on how RFG has adapted to this new landscape.

How has the real estate lending market changed with Covid-19?

Theres never been a higher degree of uncertainty in this space. This is not the credit crisis that happened in 2008, it is a health crisis thats turning into a financial crisis, which is impacting the real estate industry.

As soon as quarantine started, funding vanished almost overnight for a lot of competitors in our space. A lot of competitors are dependent on non-government resources, and they pulled back the availability of their resources. So unless you had your own money, resources disappeared.

Now, competitors are coming back with such stringent terms that they are not really able to fund loans.

RFG is a private lender. We have our own money. We have a friends-and-family-fund behind us that we handle and lend very responsibly, which enables us to continue funding loans.


Is RFG still funding? What parameters is RFG looking for?

Yes, RFG is still actively funding loans. We had a very strong March, and April was a phenomenal month as well.

We are funding responsibly and going back to the basic product that RFG was founded on:

  • 100% financing
  • 100% of purchase
  • 100% of rehab up to 65% of ARV

That is still the premier product that we are lending with. That being said, we have different lending and experience criteria, and we are taking more reserves upfront. The major differences are FICO scores, reserves, and experience.

*Read our Tips for Getting Approved for a Private Loan in an Uncertain Market to help you understand how to obtain approval for one of our loans, and what you need to consider when doing so in the current uncertain market.

Is the current market more attractive to experienced real estate investors?

We look at cash, credit and income to qualify the loan. We dont do it the same way as Fannie Mae does it – we arent trying to compete with conventional lending, we are the alternative to conventional lending and still fully underwriting the deal.

As far as new people in the real estate investment market versus experienced investors, the new people have slowed down because they are keeping their cash in their pockets, and they dont qualify as much anymore because you need more cash to qualify.

Experienced investors see this is an opportunity, because the new people are getting out of the way, and they like our product because they can stay liquid. Experienced investors are back to the basics and are seeing what the rental opportunities are.

Everybody is being cautious about where appraised values will be 6 months, 9 months, and a year from now.

Will we see a large drop in appraisals in the summer months?

Some of the smarter markets are not only looking at the sales within the 90-day timeframe, but also the price drop of listings.

Consumers are very aware that it will be more difficult to sell, therefore they are dropping their prices as well which will drop values in the appraisal.

Covid-19s impact on rehab construction in cities vs. suburbs?

First and foremost, we are sticking to our core states first. We know a lot about the NJ, PA, the Carolinas, and we do a lot of lending in the Atlanta area markets.

The largest impact at a high level will be the travel states, the transient states that were under higher restrictions for quarantine. Those areas like New York will be very difficult.

While PA and NJ will be opening up slowly, it will be a county by county basis, state to state basis that we have to watch.

Philly is opening up construction, so that will give the ability to move on properties faster. But we are not taking anything for granted, just taking it as it comes.

What is the biggest challenge for RFG in this new lending landscape?

The largest challenge is that we are all working in different locations, but we have a lot of technology in place that is helping us not miss a beat with phone calls.

The communication among us and with our customers is a challenge, but we do daily Zoom calls with our team to review the day, find pain points, and figure out training. Training and communication are key.

Do you see a silver lining in the market when it comes to rehab lending?

I do, and this comes from my background in the credit crisis that Ive seen in the past. When everything is moving along and going great, you get a little bit looser. You start having a lot more cowboys you are dealing with, not only with investors but with lenders as well. This ends up weeding out the potentially bad apples and cleans up things a bit.

The banks will have a temporary overcorrection, rightfully so. In the near term, we can deal with that. It opens up a lot of opportunities for Rehab Financial – we are extremely busy, and see this as a potential to take on market share and a lot more customers.

What advice would you give to a real estate agent in regard to construction financing?

Everybody wants to make relationships with real estate agents, however, their job is to sell houses, not necessarily to understand loan parameters. Real estate investment loans are the smallest part of their portfolio of loans that are being done – if you find someone who comes across that business more frequently, or it is their niche, then my advice is to get closer to several trusted resources to learn what is going on and what is the best way to service their customers needs.

We partner with real estate agents on a regular basis to educate them on our loan parameters. They do not need to know everything we do, but it is important for them, at a high level, to understand what they need to look for in order for them to be able to refer us the right customer, and for us to be able to execute on that.

We have a lot of people that go out and they dont know what property they are looking for – the real estate agent that just wants to sell properties isn’t doing their real estate investor any favors. Understanding our product parameters and what a successful transaction is going to be is helpful.

*Want to partner with us? Get paid when your referrals close on their loan – learn more about our referral program here.

What is the best way to contact Rehab Financial Group to discuss rehab lending?

Please check our website – it is very comprehensive. People spend a lot of time in our learning center, its a great way to educate yourself. Our blog is also a great resource. Our salespeople are always on standby and available to help – call us!