Acra Lending
Coming Out of Volatility Stronger Than Ever
By Carole VanSickle Ellis
In February 2022, Acra Lending CEO Keith Lind observed with confidence in an interview for an industry magazine that the previous 18 months had been “lucrative for non-QM lenders” and noted proudly that “a high percentage of the time Acra can find a solution for our borrowers [because] we have the ability to look outside our guidelines and find solutions for very difficult situations.” Lind went on to predict that opportunities in his company’s lending space would expand over the course of the coming year and that the burden of the “bad credit” image non-QM loans used to bear would continue to fade.
“In most cases, investors and borrowers have very good FICO scores and plenty of equity to put down to secure private financing,” Lind said. “These loans are not subprime loans. Our borrowers are putting down real equity; the weighted LTV of our loans is around 66%…. Self-employed borrowers have really become the backbone of the industry,” he concluded.
The Acra CEO had a solid basis for his predictions. Acra Lending has been in business since 2003 and weathered multiple financial and economic cycles including the 2020 COVID-19 pandemic.
“Acra has only grown stronger over the last several tumultuous years,” chimed in Kyle Gunderlock, president and chief risk officer for Acra Lending. He added, “Our competition has struggled, failing, going out of business, and, in some cases, even dishonoring [interest] locks and loan terms, but Acra has managed risk carefully and managed to come out of the last few years even stronger.”
Acra is a non-qualified mortgage lender, which means the company originates mortgage loans based on alternative methods of borrower qualification, such as bank statements or assets. Real estate investors have long made use of this type of loan to avoid “traditional” mortgage loan requirements that limit the number of non-owner-occupied (NOO) properties a borrower can own and prohibit the use of popular business entities like limited liability corporations (LLCs) to close on a property. Acra prioritizes these investor-borrowers, believing that supporting this population is not only good business, but also good policy.
“Most non-QM loans are centered around providing investors with loans to buy investment properties, and that important market just continues to grow,” said Jeffrey Lemieux, managing director of correspondent lending for Acra.
Lemieux described the need for a “housing supply surrogate” for the large volume of the U.S. population that has been priced out of purchasing a home but find the opportunity to rent renovated or rehabbed properties a viable solution. “That market will continue to grow as long as interest rates either continue to rise dramatically or remain high,” he explained. “Those folks may have been priced out of being able to afford a home with a mortgage, but they still need a home. The investment community is filling a void in the market where public homebuilders alone cannot keep up alone.”
Providing Accessible Quality in a Tough Industry
When many people hear the term, “non-QM loans,” they automatically assume the note in question is unlikely to be of particularly good quality. Historically, non-QM loans were often relegated to the same category as sub-prime loans, from which they are very different and entirely distinct. Since its founding, Acra Lending has prioritized the creation and cultivation of an investment loan program that, as Lemieux describes it, “offers loans that perform well and, from where we sit, fit from a credit-quality perspective as well as a demand and opportunity perspective.”
Lind recalled launching the fix-and-flip lending channel at Acra back in 2022, observing that there had been an ongoing, significant need for the product that has only grown since that time. “The average house in America is 40 years old, and a lot of them need a facelift,” he said. “This lending space is going to be around for a very long time.” To accommodate the expected growth, the Lind spearheaded a massive hiring initiative, doubling his workforce between 2020 and 2022. He credited Acra’s company culture for its streamlined, high-speed growth. “I’m a big company-culture person,” he said.
Gregory Meola, head of business development and strategy at Acra, described its growth strategy as a “walk-before-we-run” approach. He explained, “Our guidelines, our lending policies, the amount of due diligence we put into every single property before making the funding commitment, is probably more thorough than others’. We are not dependent on growing [a given] division out of need to produce high volume or high profits because these are not the only things that fuel our earnings statements. We can increase our volume comfortably because we have the experience and the performance under our belt to do so, but we are not ever forced into growing faster than would otherwise be prudent.”
As market demand evolves and changes, Gunderlock said he expects the demand for Acra Lending products to continue to increase because residents want modern benefits like a third bedroom, which most older apartment buildings lack. Many newer developments cannot offer this extremely attractive layout either because U.S. building codes create a demanding series of architectural maneuvers not necessarily required in other countries. For example, according to construction policy journal The Center for Building in North America, a multitude of requirements governing hall width, staircase enclosures, bedroom-window requirements, and wheelchair turning radii in elevators, among many others, create a building environment in which it becomes prohibitively costly to build high volumes of three- or even four-bedroom apartments. In response, residents begin actively seeking out single-family rental (SFR) properties and the investors acquiring, rehabbing, and managing those properties need increasingly large amounts of loan capital to fund these projects.
“We view this lending as a very important part of what our industry does to help our investor customers turn over older, sometimes dilapidated homes into new housing stock so more families can get into a home,” Lemieux said. “People need that third bedroom to support their growing families.”
A Culture of Constant Learning, Grit & Grind
In addition to the company’s products and services, Gunderlock credits the company’s determination and “grit and grind” for its longstanding success. “We never stop learning,” he explained, noting that he has “basically sat in every seat along the way since 2003.” He concluded, “I learned how all the pieces fit together along the way.”
Gunderlock has long prioritized strategies for Acra that enable the lender to look at data points from every angle. Acra remains among the few vertically integrated companies dealing in non-QM mortgages, and that gives everyone involved in the funding process a better vantage point when it comes to analyzing portfolio performance. “We deeply analyze our portfolio at every stage in the value chain,” he said, adding, “That means we can better understand the needs of our customers and build programs based on those needs that are not out-of-the-box programs but, instead, unique programs created specifically for our customers.”
Lemieux continued, “Probably the best benefit we bring to the buyers of our loans is that our credit quality has been exceptional and the performance of the loans has been exceptional.” He credited this to Acra’s decision to continue servicing its own loans as most lenders have moved away from this practice. “We are very close to those loans’ performance because we are not just originating and selling loans,” he said, adding, “We keep the servicing and are very close in understanding how those loans perform. This information is constantly fed back into our underwriting guidelines, etc.”
Lind concluded, “Thanks to that vertical integration and constant flow of information, we have a great breadth of knowledge across our industry that enables us to offer strong programs that satisfy our customers’ needs with competitive rates and fair lending while keeping our customers our focus as we build.”
SIDEBAR 1
How Acra Outpaced Lending Volatility in 2023
In 2021, mortgage rates fell to historic lows as the Federal Reserve continued its 2020 trend of lowering interest rates in response to the global COVID-19 pandemic. In January 2021, mortgage rates hit a record low of 2.65%, and the average mortgage rate in 2021 was just 2.96%. In March 2022, however, the Fed reversed course and began raising rates, with the result that by October, rates were just over 7%. Today, they hover around 8% for 30-year fixed-rate mortgages, and other loan programs may have rates significantly higher.
Not surprisingly, this type of volatility is hard on the lending industry because it creates uncertainty and has the potential to hurt lenders who try to “lock in” rates for borrowers and capital investors in order to create lending programs that will benefit all parties involved. When rates can skyrocket by 400 basis points in just a few short months, it makes this strategy difficult for lenders because lower locked-in rates may be unappealing to investment capital and higher locked-in rates are sometimes difficult to implement at a fast enough pace. At Acra Lending, however, the team walked this tightrope successfully in 2022 and 2023 to good results for all involved.
“We had determined we would be a ‘first mover’ in rates when we saw the market start moving, said Kyle Gunderlock, president and chief risk officer at Acra. “We prioritized this over ‘gaining market share,’ as you sometimes hear it referred to in the industry, and that meant we did not have to pray for a rebound in rates later. We were able to reduce our risk and threshold for loss while maintaining strong relationships with borrowers and investors throughout that volatile time period.”
Acra Lending has a longstanding policy of following the market when it comes to its interest rates. This, Gunderlock explained, means that the lender is always able to honor locked-in commitments without sacrificing capital investors’ interests. “When the market starts going up, we are aggressive in following that market,” he said. “That meant we did not have to reset everyone but, instead, were a good partner and moved our prices appropriately and confidently instead of trying to stay artificially low or artificially high.”
Acra’s leadership team credited the company’s CEO, Keith Lind, with successfully enacting this strategy. “It really played off his background,” said Jeffrey Lemieux, managing director of correspondent lending. “He really understood where the market was going and did not take market risk to the same extent our competitors did. That was what maintained our liquidity.”
SIDEBAR 2
Lending Programs Offered by Acra Lending
At present, Acra Lending offers 14 distinct loan programs catering to investors at all levels. They are:
12-Month Bank Statement
Enables borrowers to qualify for up to $4 million with 100% on personal account deposits and 50% on business account deposits.
ATR (Average True Range)-In-Full
Factors in the borrower’s liquid assets rather than employment or long-term bank statement history for loans with a maximum LTV of 75% (purchase) or 70% (refinance).
Business Purpose
Available for properties with between one and four units, permits qualifying using rents (cash flow) from long- and short-term rentals, permits closing in an LLC.
Condotel
These loans may be used to finance up to $4 million for resort, Airbnb, and daily rentals, allow LLC and corporate closings, and do not have a minimum-square-foot requirement.
Foreign National
These loans do not require reserves, may be made on properties between one and four units, and do not require income, job, or credit histories for the borrower. Condotels, Pudtels, and short-term rentals are allowed, and this program permits loan amounts up to $3 million.
Investor Loans
This suite of programs includes five elements under the umbrella of “Simple Fix-and-Flip Solutions.” Those elements are: purchase loans, purchase & rehab loans, rate & term refinance, refinance/rehab, refinance/cash out. Acra emphasizes the S.E.T. acronym for this program: Simple, Efficient, Transparent.
Interest Only
Acra’s interest-only lending program offers loan amounts up to $4 million for owner- and non-owner-occupied homes as well as second homes.
Investor Cash Flow
This program offers loans up to $3 million with an 0.80 minimum DSCR/minimum 575 FICO for SFRs, 2-4 units, condos, townhomes, condotels, and non-warrantable condos with no income or job verification.
ITIN (Individual Taxpayer Identification Number)
Qualified borrowers may borrow up to $1 million with a two-year income history, valid U.S. government-issued I.D., and a 12-month bank statement for SE and DSCR with no reserve required.
Jumbo Non-QM
Borrowers may qualify with full documentation or bank statements for loan amounts up to $4 million and case-by-case evaluation for higher amounts. Cash out is available; borrowers may be foreign nationals, and transferred appraisals are accepted.
Small Balance Multifamily
This loan program is designed for single-asset entities only; interest-only options are available, and borrowers must show 6 months P&I in reserve. There are no deposits required, and loan amounts vary from $250 to $3 million.
1099 Only
This loan program requires two years of 1099s and two months of bank statements for owner-occupied properties that are either SFRs, condos, or townhomes. Rural properties and multi-unit properties are not required.
P&L Programs
This lending program requires a CPA P&L on CPA letterhead covering most recent two years as well as year-to-date (YTD) for the business and most recent two months bank statements. This program is only for owner-occupied properties falling under the category SFR, condo, and townhome.
WVOE
These loans are designated for owner-occupied SFR, condo, or townhome properties only and do not permit the borrower to be employed by a family member. Borrowers must show a minimum 24-month rental or MTG history.
Learn more about Acra’s lending programs at AcraLending.com.
