11.12.26 Production Shifts; Private Money Funding’s Ryan Hermansky on Deals; Fed Chatter

Robbie ChrismanWelcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include discussions LOs are having with their borrowers, what to expect from today's bevy of Fed speakers, and my interview with private money funding's Ryan Hermansky on how private capital serves real estate borrowers when traditional banks decline or cannot move quickly. Here, take a listen to a little preview. What do you feel like mortgage professionals should understand about the growth of non-agency or private execution? Ryan HermanskyI think there's a lot of ways to solve a problem. If if you're if your problem is I want to get this deal done and I want this, I want to help this borrower purchase his property, it's not just going to your big corporate banks. I think there's a lot of opportunities outside of those banks that generally make more sense. Uh, you know, I'd say exploring other options is where I would say, you know, take a look at that, understand what your options are. Uh, even in the private money space, there's options upon options too. So uh there everybody's a little bit different. The criteria they lend on is a little bit different. Um, but knowing that there's options out there in the private money space, so when you get turned down by Chase, you know, it doesn't mean the deal's done. Um, there's other phone calls you need to make. Robbie ChrismanThanks to this week's podcast sponsor, Truework, an income and employment verification company. The one verification solution to replace in-house waterfalls. Verify any borrower with a VOIE solution that automates the entire process to quickly deliver the most accurate and complete reports with broad GSE coverage. To learn more, visit Truework.com. Old mortgage vets recall the end of November as traditionally being the time that Fannie Mae and Freddie Mac announced their loan limits for next year. Given the increase in non-agency lending over the last few years, this has lost some of its significance, but will still have a ripple effect through the industry. Certain loan officers can use it for marketing purposes and try to add some value. Speaking of adding value, Mortgage Solutions of Colorado LLC is shifting its focus from loan origination to loan servicing, effective November 30th, 2026. Its origination arm and sales team doing business as Mortgage Solutions Financial will leave and move to and be powered by Fairway Independent Mortgage Corporation. At Fairway, the MSF sales team will continue serving the same markets with the same loan officers, preserving the local relationships its customers and partners know and trust. Through Fairway, the MSF sales team will gain access to a broader range of loan programs and an expanded national reach. Mortgage Solutions of Colorado will continue serving the portfolio of loans it previously originated under the name MSF Servicing, while expanding its servicing business to include portfolios from other lenders, banks, and credit unions. Mortgage Solutions of Colorado servicing operations will remain at the company's current location on Campus Drive in Colorado Springs. Congratulations to all involved. And as I constantly remind originators, the U.S. Federal Reserve does not set mortgage rates. But it's good to know how they view economic data. Federal Reserve officials have indicated a willingness to increase the pace of interest rate hikes after October's consumer price index showed core inflation rising 0.3% for the third straight month. Dallas Fed President Logan says a more rapid move is possible. Fed Governor Waller has suggested a 50 basis point hike could be considered. Hotter than expected, October inflation drove Treasury yields higher before the Veterans Day holiday, with core CPI rising 0.3% versus the 0.2% forecast and headline inflation increasing 0.4%, triggering a significant Treasury sell off that was amplified by hawkish Fed commentary, supporting additional rate hikes and a potential pause thereafter. Treasury yields climbed with the 10-year Treasury yield briefly exceeding 5%, while a poorly received $42 billion 10-year auction reinforced weak investor demand for longer-term debt and pushed the yield curve into a bear flattening pattern. Mortgage-backed securities also faced selling pressure, losing approximately a quarter to three-quarters points with lower coupons and the belly of the coupon stack experiencing largest declines, while current-coupon yields climbed to 6.13%. Overall, persistent inflation, increasingly aggressive Fed expectations, and weak Treasury auction demand are creating renewed upward pressure on borrowing costs, weighing on MBS valuations, and presenting additional challenges for mortgage rates and housing affordability. For today's interview, I wanted to welcome to the show Private Money Funding's Ryan Hermansky to talk about how private capital serves real estate borrowers when traditional banks decline or cannot move quickly. Private money lending is a form of real estate-backed investing where capital is deployed into private loans secured by property, creating an opportunity that oftentimes IMBs or depositories won't lend on. We're here to talk about private capital and how it's filling gaps that traditional lenders cannot always serve. And maybe let's set the stage a little bit, because I I eventually want to ask you how you see the proliferation of non-agency lending in the mortgage industry, which has been going on, how that's going to impact private capital. But in the first place, when we hear the phrase private capital for people listening to this, maybe they're uninitiated, what should they think and what is the role that it plays in the, at least for the sake of this podcast, with the residential lending process? Sure. Ryan HermanskyWell, quite simply, and I'll elaborate further, but we kind of try to find a reason to say yes when banks say no. There's currently a huge gap and really always has been a gap in the market from where your traditional big corporate banks, the Bank of America, Wells Fargo, Chase, et cetera, all the ones that you would name and see commercials for every day, what they're willing to lend on in the commercial space is very limited. You know, they like the bigger deals, they move exceptionally slow as kind of expected. They don't really like risk. So regardless of your credit score and your income situation, you know, that $5 million shopping center down the street that you want to buy, most banks are just going to turn it down and have no interest in helping you acquire that. And that provides an opportunity for us to step in and other private money sources to do that deal. So what we see, and you know, I use the shopping center kind of analogy there is that's an exceptionally common thing for us to lend on. You'll you'll have a warehouse or a shopping center. It's got you know a bunch of tenants in there, needs paint, needs a new parking lot, they minor stuff. Uh and a bank's gonna look at that and just say, look, I you know, I don't like these tenants, you know, they're not performing. They need to go. We we can't lend on it for that reason. Um, or they won't give you the you know appropriate CapEx-type way to lend on it. We'll sit there and we'll look at the value of the property and we'll we'll say, why don't you meet us halfway? It shopping center is five million, we'll give you two and a half, you put in two and a half. That gives that that buyer of that shopping center time to turn the tenants over, get better performing tenants, fix the parking lot, put paint on it. And then now it's more of an attractive product to take to, you know, Bank of America or Chase, et cetera. So that's kind of where we fill in. We just, you know, when banks are are having trouble lending or or can't move fast enough, you know, we we fill that void. Robbie ChrismanThe mortgage bankers association has a monthly report, the mortgage credit availability index, and they'll tell you it's going up. I'm not sure exactly what they based it on. How do you feel about the the shifting landscape of what depositories or independent mortgage banks are willing to lend on? Have you seen that shifting from your perspective and where are y'all filling the gaps? Ryan HermanskyWell, you know, the you you saw you saw the huge banks get really burned after COVID with office settings. So they they really took a big step back on the the huge skyscrapers full of office buildings. You know, we we don't lend on that. That's not the space that we're in either. But I think that you saw a lot of trickle down from that where they just stopped lending on a lot of corporate real estate altogether. They got left, you know, kind of holding the bag on billions of dollars in in commercial real estate. A lot of loans came due, uh, and they were kind of forced to restructure them. Uh, what a lot of people don't know is you know, you buy a building or that shopping center I mentioned, you're not doing your traditional 30-year fixed and financing it over 30 years and paying it off. They're generally like five-year term type deals. And every five years, you're redoing that deal. Now, if things go great and you have appreciation, you know, that that large building or that shopping center, it's gone up. You have more equity in the property, it's easy to refinance. But when you have something catastrophic like we saw, or you know, some sort of big market turndown and the properties maybe worth less money than what you owe, the bank and the building owner are sitting there going, like, what are we gonna do? Um, so the banks got really burned there. So they they lost, you know, a catastrophic amount of money. Uh and it's really impacted all the way down to the you know the loans that are two, four, six million dollars. Robbie ChrismanThere's an interesting transitive property going on here where we make loans that they're not willing to make. However, they just got destroyed in a lot of senses. By that transitive property, the private lending space should have gotten destroyed. So, I guess my question is how do you assess risk that you feel like is different from some of these larger lending institutions that that allows you to still be successful? Ryan HermanskySure. So when when we're looking at a property, we we always take the worst case scenario. Like the market's gonna drop 20, 30 percent, and uh, you know, we're gonna foreclose on this building. Every single building we look at, that's our attitude on it. And why I say that is, you know, now we own that building, what are we gonna do with it? Can we sell it, right? Like, are we able to still sell it because we have so much equity in this building? Um, is this something we want to keep as part of our portfolio and just you know replace the tenants or keep the exact existing tenants? That's how we look at things. We're identifying the actual property far less uh than the borrower itself. Like we want to know who the guy is, we want to know what they do, what they're doing with the money, if we're giving them money, but we protect ourselves with you know very low, very conservative loan-to-value uh real estate. So if it's a you know, you're buying a million dollar property, we're gonna look for you to put down, you know, 40 to 50 percent. And that's how we protect ourselves and protect our investors. That does make us unique. There's certainly lenders that will lend far, far higher than that and and far higher LTVs, but they're far more at risk for any sort of market downturn. Robbie ChrismanYeah. Can you talk about getting creative on deals, ways that you can get creative to be able to get to closing? Ryan HermanskyWe're very straightforward. I don't know that we get that creative. Um, I would say for us, only speaking on behalf of myself and in private money funding my company, we can pull together multiple assets, um multiple properties to have you leverage. So if if you know we we need to make sure the the leverage makes sense for this deal. So the individual property you're purchasing doesn't necessarily need to have a ton of equity. If you have other properties, we could take a look at other properties and leverage those to help you buy something else. Um, so that that's the way we get creative. I would describe us as a very conservative lender, though. So like there are other lenders out there doing more creative stuff, but that's not just not our space that we feel comfortable in. Robbie ChrismanObviously, people have a wide variety of choices in how to deploy their capital. What is attractive to you about making the loans that you do versus say putting it in the stock market or bonds or they're somewhere else? Ryan HermanskySo on the investment side of our business, uh so we we bring investors on, we pay them 9% on their money. So they it's it's a 9% annual return that compounds monthly. So we'll bring the investors on that get a distribution the first at the first of the month in their account. Uh, and they're now part of a portfolio, part of a fund that is protected by commercial real estate without being a landlord, without fixing AC units, without redoing parking lots and painting buildings and firing tenants. Uh so this it's a great way by investing with us to be part of a fund that checks that box of commercial real estate for your portfolio without all the headache. Robbie ChrismanAnd when we think about technology as it pertains to the private lending space, where are you seeing artificial intelligence, machine learning? Where are those, where are those driving the industry forward? Ryan HermanskySo I'm I'm paying a lot of attention on that on the appraisal side of the industry. I think it works currently pretty well on the residential side. If you look at technology like Zillow, for example, or Realtor.com, it provides pretty good, pretty accurate information on the residential side. Uh, commercial side is it's just far different, right? You're not dealing necessarily with a neighborhood full of similar houses. You know, in a commercial zone, I mean, you could have a big warehouse building, then a retail shopping center, and then raw land, uh, all next door to each other that all have very different values and can be used for very different things. My my hope is that AI does a good job on identifying property values and helps in that side of the business. The range of commercial values, if if you get three appraisers to appraise the same property, you're getting three pretty big values, um, big swings. And you know, on a $10 million property, it could swing 20, 25% pretty easily, um, which is, you know, as a lender, concerning, right? You have to work with somebody you really know and trust. It'd be pretty ideal if if AI could help on that side. You know, the underwriting stuff, I think there's no question, it can pull up a profile and have a pretty good picture of people. I could see AI being involved in the underwriting and understanding borrowers as well. Uh, so I think our industry will definitely see some positive impacts from it. I pay a lot of attention to AI. I'm I'm fascinated by it. Yeah, I have three young boys that um, you know, they're 12, 11, and 10, and I'm you know, having conversations on like, what do you want to do when you grow up? And I in the back of my mind, I'm always sitting there going, like, well, that profession exists when you grow up, you know. So uh it's not only short term in understanding how it can affect our day-to-day, you know, but big, big picture. But you know, we also use it for marketing pieces uh already. So when we're communicating with people, um, things that I would have gone to a graphic artist before, you know, now Claude will will make up something and do such a better job than I would have. Um so we're we are using AI now, especially with Claude already. Um evaluating documents, it's been incredible. Uh, like so we'll as a lender, you know, we have to have all these professional documents, make sure everything's you know done correctly. So there's it's a pretty good stack of documents. If you're coming on as an investor or a borrower, either way, we have a kind of a uniform set of documents that we adjust per deal. We ran our documents that we spent tens of thousands of dollars, like 75 grand over the over the course of the last four years. These documents change all the time. We ran those through Claude. Claude found a dozen plus mistakes in a dozen plus areas where it's like, you know, this, this, I see what you did here. Have you thought about this? And it had legitimate good recommendations. And that stuff, like we top law firm we're using here in Phoenix, their nationwide law firm. Um, you know, how countless eyeballs on it, tens of thousands of dollars in expense. And Claude's finding numerous mistakes. Like it's it's sitting there going, like, we're using it now, it's impactful already, and it's I think it's only going to be more impactful as we go. Robbie ChrismanSetting aside property values or tenancy rates, how do you see the lending environment shifting? Do you see banks pulling back in certain areas or piling in to certain areas? We things are always in flux when it comes to the lending. Sure. Ryan HermanskyYeah. Ryan HermanskyYeah. I think the last four or five years, we've just seen banks like the big boy banks pull back from commercial lending in the 15 million and below space, which is where we kind of operate. So I'm not an expert on 20 million, 100 million, $1 billion buildings. Like that's just a different space that we don't play in. But we have a track record with, they have a personal track record with a lot of banks. They've been doing the same business for decades. They've gone to Bank of America, they've gone to Wells Fargo, they've just got the same loans every year to do, you know, rehab of a fourplex or a duplex or buying the shopping center, the warehouse. Like they have their business that has a proven track record of success, and they're now getting turned down. So I you know those are the stories that I find pretty fascinating. So these people, I mean, they're an A plus candidate for us. They have the track record, they have the experience, they have the know-how of what to do, they know the model, their model works. Like, we'll we'll sign up for that all day long. They're identifying great properties that make sense. And the banks say no, and we're sitting there going, This, this is amazing. And it's it's not it's not something that it has anything to do with the property or anything to do with the candidate. It's the banks just it's just not what they want to do anymore. So I found that very fascinating, and that's ultimately helps us out. Robbie ChrismanI found this whole discussion fascinating. I appreciate you making the time. Sure. Ton of valuable tidbits. I think listeners will appreciate it too. So thank you, sir. Ryan HermanskyThank you very much. Enjoyed it. Robbie ChrismanToday's economic calendar kicked off with jobless claims. Initial jobless claims were in at 200,000, still a very low level, even though they ticked up from last week. Continuing claims were at 1.697 million. Later today brings existing home sales for October, a Treasury auction of $25 billion in 30-year bonds, and remarks from a laundry list of Fed speakers. Chicago Fed President Goolsbee, Cleveland Fed President Hammack, San Francisco Fed President Daly, Kansas City Fed President Schmid, and New York Fed President Williams. Thursday starts with agency MBS prices, little change from Tuesday, the two-year yielding 4.75, and the 10-year yielding and even 5.00, after closing Tuesday at 4.98%. Let's wrap up with a joke and some housekeeping. My doctor says I'm not at risk for Alzheimer's disease. So that's good. My doctor says I'm not at risk for Alzheimer's disease. So that's good. Thanks again to Truework, an income and employment verification company, for sponsoring this week's podcast. Truework is the one verification solution to replace in-house waterfalls. You can verify any borrower with a VOIE solution that automates the entire process to quickly deliver the most accurate and complete reports with broad GSE coverage. To learn more, visit Truework.com.