BRIDGE LOAN VOLUME IS INCREASING
Instead of categorizing based on loan type (i.e., fix-and-flip, non-construction bridge, residential transition loans, etc.), we focus on monitoring loans that have a term of less than 36 months, categorizing them as 'bridge loans.'"
A common question among lenders is how to benchmark and analyze their loan volumes on a year-over-year and month-over-month basis. To achieve this, we monitored the bridge loan volume for a group of 123 distinct users. Comparing the bridge loan volumes from January 1 to August 31, 2023, with the same period in 2024, the volume of short-term loans rose by a substantial 30% among the 123 users (see Fig. 1). The rise in volumes reflects genuine growth in transaction numbers, rather than just a larger market share, indicating a significantly stronger year overall.
A SMALL DROP IN NATIONAL BRIDGE LOAN INTEREST RATES
Throughout the year, the average bridge loan interest rates edged down from 11.53% in January 2024 to 11.12% in August 2024 (see Fig. 2). Loan amounts have remained relatively stable, typically ranging between $550,000 and $650,000.
An analysis of 2,092 loans issued in August reveals that 80% of short-term loans have interest rates between 10.0% and 12.99% when the data is broken down by individual rates. Approximately 10% of the loans had interest rates below 10%, while a similar percentage exceeded 12.99% (see Fig. 3)."
REGIONAL TRENDS
California, Florida, and Texas remain the top three states for loan activity, maintaining the same ranking from 2023 to 2024, with only slight changes in the other leading states (see Fig. 4).
Upon examining more detailed geographic trends, we find that Los Angeles and San Diego counties rank first and second, respectively, with Orange County holding the fourth spot among the most active JO areas. California leads with four counties among the most active, surpassing Texas, which has just one county (Dallas) in the national top 10 (see Fig. 5).
NOTABLE FLUCTUTATIONS IN LOCAL INTEREST
Given that the industry earned its reputation as 'local lenders serving local real estate investors,' it’s unsurprising to see considerable volatility and variation in interest rates at the local market level
While California is often thought to offer lower interest rates compared to states like Texas, the monthly data disproves this belief. In fact, California typically has higher average interest rates and tends to command larger loan amounts, driven by higher property prices, which in turn create significant opportunities for lenders (see. Fig. 6).
NATIONAL DSCR LOAN PERFORMANCE
An increasing number of private lenders are now providing Debt Service Coverage Ratio (DSCR) loans. Unlike bridge loans, DSCR loans have a 30-year term and are primarily sold to insurance companies and loan securitization firms. The main benefit to the originator is the profit gained from selling the loan.
Unlike bridge loans, which experience considerable local rate volatility, DSCR loans and their secondary market functions typically offer more consistent average interest rates, regardless of location.
DSCR lending presents considerable opportunity, as shown by the growth in loan volumes and the favorable movement in interest rates, both of which are expected to drive refinancing activity.
By Nema Daghbandan, Esq.
Private Lender, The Official Magazine of AAPL
Fall 2024, p. 16-20
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