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How proptechs are adapting in a changing market


My, how things have changed. Just a couple years ago there was incredible momentum building around alternative ways to purchase, sell and extract value from residential properties. 

iBuyers led the way on reshaping the options available to sellers through direct, instant cash offers at scale. The highly competitive purchase market and bidding wars gave rise to power buyer models to help non cash buyers compete.

Creative solutions meant to help renters become homeowners and let homeowners tap into their equity without taking on additional debt began to spring up like the California wildflowers I hope last through the fall (is there a fall season in California?).

There were historic amounts of investment and funding, and for some traditional housing finance models, real fears of being disrupted. That is until interest rates tripled in the course of nine months, of course.

The pullback of capital and massive drops in the number of real estate transactions have simultaneously put pressure on alternative business models to become profitable faster, and to find ways to adapt in a changing market.

However, the major problems that these businesses are trying to solve have not gotten any less daunting, funding or not. In fact, they might have become more challenging in many cases. Lack of affordability, limited supply and the need to access equity without selling remain major friction points for homebuyers and homeowners alike. 

This need for adaptation has resulted in the consolidation of companies, blurred lines between alternative finance with traditional mortgage products and new momentum for platforms that address the needs of existing homeowners.

With all this change, it’s worth exploring some examples of how proptechs are adapting, and check out some of the business models that have survived the market pullback.

Fractional and shared ownership

The concept of co-ownership and co-buying is far from a new one. Friends and family members pooling resources together for vacation homes and investment properties has been a common tradition for generations.

But with mortgage rates well above 7% and home prices remaining stubbornly high due to a lack of supply, co-buying is being looked at as a viable option for first-time homebuyers.  

Shared ownership in an investment property can also provide a means to accelerate the growth of funds for future down payments, allowing first-time homebuyers a faster path to homeownership.

The problem with this process has been complexity and access to lending products. Coordinating multiple parties can be tricky, but startups like Nestment are providing a platform for allowing friends to buy together. These platforms are even moving toward matchmaking networks, where you can find people you haven’t met with similar goals for co-buying.

Power buying/trade-in mortgages  

High-rate environments tend to deter buyers who need financing more than cash buyers. That trend has been evident this year as the percentage of cash buying has increased to a decade high, according to Redfin.

There doesn’t seem to be more cash buyers in the mix, just fewer buyers who are financing. Either way, the need to compete against cash buyers with no contingencies continues to be a real challenge.

One contingency that companies like Calque are trying to reduce friction on is the sale of your existing home. Enter the trade-in mortgage concept, where you have a guaranteed path to make an offer on your next home without selling your current home.

Not only does this strengthen the offer to compete against cash buyers, but adds a level of convenience since you don’t have to prep your current home for listing until after you have moved into your new home. This is done through using the equity on your existing home as a down payment.

Moving can be stressful, so for buyers that need to change locations quickly, perhaps for a job relocation, this could reduce some of that stress.  

Home equity agreements  

Speaking of using your home equity, there is an incredible amount of untapped equity available to U.S. homeowners.

According to the latest Q2 report from the St. Louis Federal Reserve, there is a total $30 trillion dollars of equity shared by U.S. homeowners or $200,000 on average per homeowner.

However, traditional products like cash-out refinances and home equity lines of credit (HELOCs) are not always the right fit for some homeowners looking to tap into their available equity with today’s high mortgage rates.  

This is especially true for homeowners who would not qualify for a traditional loan due to financial hardship, and want to use their home equity to get themselves into a more stable situation without having to sell their home.

Companies that offer alternative options such as home equity investments or agreements are on the rise. Unlock, Point and others offer to buy a portion of the home for cash, with an agreement that doesn’t require monthly payments but a share of the future home sale or refinance within a specified term.  

Final thoughts

It looks like the real estate and housing finance market could be in a challenging place for a while longer, since the Fed is still working to combat inflation.

Innovations that give first-time homebuyers a shot at buying now, and let current homeowners hang on to their existing low mortgage rate while using their equity to create financial health are welcome. 

Some of these models have not been tested long term and there is a constant need for consumer advocates to ensure homeowners and homebuyers are not taken advantage of, especially during times of need.

However, my overwhelming experience with proptech founders has revealed a number of “golden rule” followers out there. Most of them are just regular people who experienced a difficult situation buying their own house or maybe saw their family members struggle, and now want to keep that from happening to others.

We will need that type of mindset to tackle the current challenges in today’s housing market.

Kenon Chen is the EVP of strategy and growth at Clear Capital.



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What’s in store for non-QM in 2024?


HousingWire recently spoke with Mack Walker, SVP of capital markets at Deephaven Mortgage, about how the year went for the non-QM sector and what’s in store for the industry in 2024.

HousingWire: How did the non-QM sector fare this year among rate increases, slow purchase volumes and the difficulties in the banking sector?

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Mack Walker: The non-QM sector is similar to other sectors in the mortgage space that endured headwinds throughout 2023 relative to volume in past years. While we have had our challenges, non-QM has been more insulated than agency. Due to a tightened credit market and other factors, non-QM has been more in demand and the interest among lenders is growing. Our expectation is that volume will be around $30 billion when 2023 comes to a close.

The reasons for the success of non-QM lies partly in the composition of borrowers. Non-QM borrowers such as those who are self-employed and real estate investors are generally less rate sensitive. In fact, a growing focus is the real estate investor population.

In a market with higher rates affordability persists, and this creates a situation where there is greater demand for rentals versus new homebuyer purchases. There is also growing demand for non-QM products from a banking sector that is taking note, presenting new opportunities where some banks see the need to sell loans they would traditionally hold as portfolio products. We also continue to keep our eye on any disruption in the warehouse lending space and see as an area of potential focus headed into 2024.

HW: What are the strengths of the non-QM sector?

MW: Non-QM provides a source of financing solutions that caters towards homeownership of a growing population of underserved borrowers in the United States. According to the U.S. Bureau of Labor Statistics approximately 16 million workers are self-employed. The population of entrepreneurs and gig economy workers is growing and the documentation requirements to qualify for a traditional loan present hurdles for this borrower base.

Deephaven is filling this void not only for self-employed borrowers but other borrower types in the non-QM space. These borrowers include real estate investors as mentioned before with a continued emphasis to provide liquidity through a debt service coverage ratio (DSCR) product that qualifies on the rental cash flow of the subject property. There are currently around 19.9 million rental properties in the U.S. with 85% owned by individual investors and LLCs based on 2021 U.S. Census Data.

HW: How can lenders and brokers learn more about offering non-QM products?

MW: Deephaven has curated an educational series that has grown in esteem and popularity among our partners. In addition, we host a large number of webinars for our partners. Included in our education series is a course on how to source non-QM borrowers. This is an important one as many of our partners need guidance on where to find non-QM borrowers.

Our client development team spends a lot of time at conference forums and in retail branches educating loan officers. Deephaven is the teaching university of lenders! We will educate on exactly how best to cater to these borrowers as each borrower is unique in their own way bringing a different set of circumstances.

The high interest rate environment has created a situation with more brokers wanting training to become experts in non-QM. Deephaven is a pioneer in the space, and we can provide a head start for those ready to deliver non-QM loans. For that group still hesitant about the space, we urge them to give us a call and learn more about non-QM sophisticated borrowers, and these good performing loans. It is crucial to partner with the right lender who focuses on non-QM exclusively and that has been in the space for a long time with subject matter expertise. We will walk you through every step.

HW: Looking ahead to 2024, what’s in store for non-QM?

MW: Demographic trends continue to move away from traditional employment to entrepreneurial self-employment and the gig economy. This is a trend that plays well into the non-QM space. If rates do stay higher for longer, the market will continue to bode well for non-QM. Non-QM borrowers are generally less sensitive to a higher rate environment. We continue to see an increasing demand for non-QM and our continued volume growth supports that.

The bottom line is that looking ahead we see continued growth. If you currently are not offering non-QM, we encourage you to explore and add the product suite in 2024. The key to success with non-QM is to choose a non-QM lending partner wisely. There are a variety of ways to engage in the space – brokering, banking, delegated correspondent, non-delegated correspondent, etc… Deephaven has our finger on the pulse with over a decade in the space. We know how to navigate this ever-changing market and continue to grow in lock step with our partners.



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Home equity investment firm Splitero loses main investor, $750M in committed capital


Michael Gifford and David Zvaifler‘s home equity investment company, Splitero, lost its main investor, Redwood Trust, HousingWire has learned.

According to an internal presentation deck, the startup had secured more than $1 billion in committed capital. Out of that figure, $750 million was supposed to come from Redwood, representing 75% of the total capital. Atalaya committed $250 million while Kingsbridge put up $50 million. A source who received the deck from Splitero provided it to HousingWire on the condition of anonymity. 

In September, Redwood launched its in-house home equity investment (HEI) origination platform called Aspire. The platform aims to “directly originate HEIs by leveraging the company’s nationwide correspondent network of loan officers and establishing direct-to-consumer origination channels,” the company told HousingWire. 

During a phone interview with HousingWire on Oct. 16, Gifford said that Redwood stopped buying home equity investment (HEI) contracts prior to the launch of Aspire. Gifford also specified that Redwood was buying HEI contracts from different parties in the space and then pulled back from its commitments.

He added that Splitero was looking for other investors and hinted that the company would have some good news to share soon.

Gifford declined to discuss the company’s financial performance in 2023. According to its website, though, Splitero has closed 3,160 HEI contracts since its launch in 2021, totaling over $250 million in investments.

“Personally, I think it’s a great proof point for the space. Redwood trust is a well-respected institution,” Gifford said of Aspire’s launch. “I think it brings a lot of legitimacy to the product in the space. And so we are wishing them nothing but success on that.”

Redwood declined an interview for this story, but provided an emailed statement from John Arens, Redwood’s managing director and head of HEI:

“We have not shared any plans on additional investments in HEI operators. We remain focused on driving capital and financing to the sector, to provide long-term product solutions that benefit both homeowners and investors. This includes Aspire, Redwood’s new in-house HEI origination platform.”

Splitero’s website states that the company is currently experiencing “overwhelming demand.” As a result, the company temporarily stopped taking new HEI applications from homeowners.

“At this time, our primary focus is on funding homeowners who have already completed an application,” the company shared on its website. 

Splitero currently operates in selected parts of California, Colorado, Oregon, Utah and Washington.



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Housing experts are hopeful the Fed is done with rate hikes


Federal Reserve Chair Jerome Powell left the door open to a future interest rate hike on Wednesday, but most housing professionals are hopeful that the Fed may be done hiking interest rates for 2023.

Tight financial and credit conditions, slowing inflation and high 10-year Treasury yields – the primary driver in the rise of longer-term interest rates – will likely discourage the central bank from a further rate hike this year, economists and mortgage professionals said. 

In turn, this will provide relief and bring down stubbornly-high mortgage rates.

“I think the one thing I take away from today is that financial and credit conditions are tighter now, which was different than before,” said Logan Mohtashami, lead analyst for HousingWire. “Unless the 10-year Treasury yield falls considerably, the stock market rallies and home sales start to take off again, December should be off the mark.”

The 10-year Treasury yield, which acts as a benchmark for mortgage rates, fell to a two-week low at 4.766% on Wednesday after the Fed held interest rates steady in a range of 5.25%-5.5%. 

Fed officials forecasted one more rate hike in 2023 in its September dot-plot estimates, which shows the range of forecasts for where interest rates could end up. The majority of Fed officials had expected interest rates to finish the year at around 5.6%. 

Marty Green, principal of Polunsky Beitel Green, described the Federal Reserve as a “blackjack player with two face cards.” 

“The only sensible play at this meeting was to hold pat,” Green said. “It is becoming increasingly clear that the Fed is indeed done raising rates in this cycle. While the cycle has been inordinately painful to the mortgage industry, with another interest rate pause, we should be at least one step closer to some relief in 2024.”

Inflation has fallen significantly since hitting a four-decade high last summer, but consumer prices have increased by 3.7% in September year-over-year, still climbing faster than the Fed’s target of 2%. 

The economy is starting to slow down and inflation will moderate at a pace that suits the Fed, said Melissa Cohn, regional vice president of William Raveis Mortgage.

“We’re coming up against Nov. 17, when the government funding ends,” Cohn said.

Coupled with the Israel-Hamas war, the central bank could keep the Fed’s pause on another interest rate hike for a third consecutive month after its next meeting on Dec. 12-13.

“Even though Q3 economic growth came in quite strong, and several job market indicators continue to show strength, so long as inflation continues to come down, the Fed is likely to pause at this level for some time,” Mortgage Bankers Association‘s SVP and chief economist Mike Fratantoni said.

Fratantoni went a step further in anticipating the Fed to cut interest rates in the second quarter of 2024.

“If the Fed does indeed move to cut rates next year and signals its intent to do so, mortgage rates should trend downward. Our forecast calls for this to happen, which would support a somewhat stronger spring housing market,” Fratantoni said.

Powell, however, made clear on Wednesday that the committee is “not thinking of rate cuts” and is intent on bringing inflation down to 2%.

The best-case scenario is for the Fed to keep rates steady in December, said Raunaq Singh, founder and CEO of Roam, a platform for affordable homeownership.

Depending on November’s inflation readings, a slight rate hike in December is also likely, he noted.

“This will exacerbate the housing affordability crisis, which has already reached an all-time low,” Singh said. “Median monthly mortgage payments are at an all-time high. More than 50% of mortgages have monthly payments north of $2,000, whereas two years ago that number was more like 18%.”

While the odds of an additional rate hike is low, the Fed is expected to keep the option on the table, Danielle Hale, chief economist for Realtor.com, raised a cautious view.

“As long as a rate hike is on the table, investors are likely to position cautiously, and the tendency for rates to remain steady to slightly higher remains,” Hale said.

Improvement in data should reflect lukewarm readings on the economy and lower inflation, which will be more important drivers of lower rates, she explained. 

At the final FOMC meeting in December, two months of inflation and labor market numbers will be reviewed to determine the direction of future interest rates. 



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The upside of 8% mortgage rates? More inventory


If I had told you on Dec. 31, 2022, that mortgage rates would hit 8% in 2023, you would reasonably assume housing inventory would sky rocket higher, home prices would fall noticeably, and the number of price cuts would be higher year over year. Instead, the opposite has happened: home prices nationally hit an all-time high, inventory is still down year over year and the percentage of price cuts is 4% below last year’s level. 

However, at least on the inventory front, 8% rates are starting to make a difference and we could be on the verge of active inventory being flat or even higher than last year.

Weekly housing inventory data

Even though I haven’t been able to hit my target level of 11,000 -17,000 weekly inventory growth levels in 2023 with higher rates, it is clear that higher rates are doing their traditional work in creating more inventory growth by slowing the market down.

However, the weekly active inventory is still negative year over year and a big reason why is that we are working from a higher base of inventory, so naturally the slope of the curve is slower because existing home sales aren’t crashing like they did last year.

Last year, the seasonal peak for inventory was Oct. 28 according to Altos Research. With mortgage rates near 8% and the growth rate of inventory picking up, it looks like the inventory peak will happen later this year.

  • Weekly inventory change (Oct. 20-Oct. 27): Inventory rose from 554,350 to 562,556
  • Same week last year (Oct. 21-Oct. 28): Inventory rose from  571,944 to 578,089
  • The inventory bottom for 2022 was 240,194
  • The inventory peak for 2023 so far is 562,556
  • For context, active listings for this week in 2015 were 1,169,130

Once again, we had another week of high mortgage rates but new listing data was unfazed. While new listings are still trending at the lowest levels ever recorded in history, we are forming a bottom in this data. The real test will come in the spring and early summer months of 2024 to see if we can get some increases year over year with merit. On CNBC recently, I brought up the premise of new listings data bottoming out and that we should see some flat to positive data soon in this data line.

Traditionally, one-third of all homes have price cuts before they sell. When rates rise and demand gets weaker, the percentage of homes with price cuts can grow. Now the crazy stats for 2023: even with higher home prices and higher speeds, not only is inventory still negative year over year, but the price cut percentages are still running 4% below last year:

  • 2023 39%
  • 2022 43%
  • 2021 28%

Mortgage rates and the 10-year yield

Mortgage rates stayed elevated this week as the 10-year yield stayed close to the yearly high. However, on a good note, if you’re looking for one, we didn’t see a new yearly high in the 10-year yield this week or a new high in mortgage rates. We did close below 4.87% on the 10-year yield, which is crucial for me. We just need to see some follow-through bond buying to break below this upper range on the 10-year yield.

Mortgage rates ranged between 7.88%-7.97% and we still have itchy-finger bond traders. We have a huge week of labor data and another Federal Reserve meeting coming up this week that could push mortgage rates lower if the Fed talking points are more dovish instead of their very hawkish stance last time. Also, we have a lot of labor data coming up this week that could push mortgage rates lower if the data is weaker.

Purchase application data

Purchase application data was down 2% last week versus the previous week, making the year-to-date count 18 positive prints, 22 negative prints, and one flat week. If we start from Nov. 9, 2022, it’s been 25 positive prints versus 22 negative prints and one flat week.

Now, some people, including myself, were surprised that the pending home sales data came in positive month-to-month last week. However, context is critical with existing home sales data; it’s very rare to trend below 4 million monthly home sales post-1996; we are currently there, but this has been my line in the sand for a long time, and we are just stuck at these depressed levels.

The week ahead: Jobs week and the Fed!

Get ready to buckle your seatbelts; we have four labor reports and the Fed meeting this week. This Fed meeting will be exciting because real yields are very rare for them now, and there has to be some disagreement among Fed members if any of them even talk about hiking again with long-term bond yields this high. Or the Fed could say, well, jobless claims are low, and economic growth is too strong for our liking.

With four labor reports and the unstable activity happening in the Middle East, we have the potential for a wild ride with rates this week.



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What is APR on a Loan? (How to Calculate, and More)


The APR (annual percentage rate) on a loan is the total cost of borrowing money. Understanding APR is crucial when applying for a mortgage, personal loan, credit card, or real estate loan. The percentage amount greatly impacts the total cost of your loan. Therefore, comparing APRs is the most effective method to discover the best financing offers. 

When applying for real estate financing, a lender typically advertises the loan interest rate prominently. However, additional fees and costs affect the total amount of your monthly payments. Therefore, you must understand the APR to find an affordable loan before purchasing real estate.

This article is a comprehensive guide to understanding loan APRs. This information will help you make an informed borrowing decision when applying for a loan.

What Is APR on a Loan?

The APR on a loan is the actual borrowing costs over a year. It includes the interest rate and additional loan fees. These extra costs include lender fees, underwriting fees, origination fees, and insurance premiums. The APR is a standardized way to help you compare the cost of borrowing between lenders.

The APR is tied to the prime rate—the minimum interest rate banks charge when they lend money. Typically, the prime rate is 3% above the base rate set by the Federal Reserve. 

The Truth in Lending Act (TILA) requires lenders to disclose the APR they charge borrowers. Usually, the lender’s annual rate is in the small print, and you must look hard to find it. 

How APR differs from interest rate

The difference between the interest rate and APR is that APR includes all the fees included in the loan. A mortgage lender charges interest on the amount borrowed—the principal balance. However, the lender also charges origination fees, annual charges, and closing costs to process your real estate loan. 

For example, several lenders could offer similar interest rates on a loan. However, the annual cost of the loan will be more than the bank’s base interest rate. Therefore, comparing like-for-like doesn’t give a true picture of the yearly cost. It is a single factor determining finance charges.

Let’s say two mortgage lenders offer interest rates at 8%. However, Lender 1 has higher closing costs, customer service fees, and annual charges than Lender 2. In that case, the annual percentage rate of Lender 2 will be lower, making the loan cheaper, with lower monthly payments.

Therefore, APR is a broader measure to determine the true cost of borrowing versus interest rates alone.

Types of APR

Real estate loans from banks or credit unions typically offer fixed or variable APRs. However, if you are looking for other financial services—credit cards, auto loans, or personal loans—you may see different types of APR. 

Here is a short guide to five different types of APR:

  • Introductory APR: A credit card company may offer special introductory rates to new customers. For example, they may offer 0% APR for the first 12 months, effectively letting you borrow money for free. However, you must read the fine print on the exact terms after the promotional period ends. 
  • Purchase APR: This is the yearly rate for a credit card. The APR is the percentage applied to the balance after the credit card grace period expires. For example, a provider could allow 40 days to pay the credit card balance without charging interest. 
  • Balance transfer APR: A credit card provider may use incentives to entice you to transfer a loan or credit card debt to their loan services. You pay APR on the transferred balance. Sometimes, the promotional balance transfer APR can be as low as 0%.
  • Cash advance APR: Credit card issuers charge a higher credit card APR to withdraw cash from an ATM. Typically, the rate of interest is applied immediately, without any grace period. 
  • Penalty APR: You may be charged a higher APR rate if you breach the credit card agreement. For example, late payments could mean paying a penalty on top of the standard APR.

APRs for loans let you compare providers to find the best deals. However, it’s always wise to check the exact loan terms, as you may face tough penalties for breaching terms or not paying the credit card balance within a certain period of time.

Fixed vs. Variable APR

Most banks, credit unions, and mortgage lenders offer fixed or variable APR loans. Understanding how these loans work can affect your financing choices. Because loan terms are typically fixed between 10 and 30 years, the type of APR can significantly affect your real estate investment strategy.

Fixed APR

A fixed-rate loan is where the interest rate remains constant for the loan term. Therefore, the monthly payments for this type of loan remain stable, regardless of market health. This provides stability without concerns about unforeseen hikes in interest rates. 

For example, the interest rate on a 30-year fixed-rate loan doesn’t change from the first day of the mortgage to the last. 

The benefit of fixed-rate APR loans is that you know the monthly mortgage payment, regardless of changes to the base rate. However, you cannot benefit from declining interest rates, and loan agreement terms are typically less flexible. You also may face penalties if you want to exit the loan early.

Variable APR

A real estate loan with variable rates fluctuates based on a benchmark like the prime rate. Therefore, the monthly payment and loan’s annual cost change over time. Lenders usually offer adjustable-rate mortgages (ARMs) with rates lower than a fixed-rate loan. These rates are fixed for a period of time before the adjustable period starts. 

The benefit of variable-rate loans is that monthly payments are lower during the introductory period. Also, you can benefit when base rates fall. 

However, the variable nature of the loan means it is difficult to plan for or forecast future cash flow. And depending on market conditions, monthly payments could rise quickly.

Components of APR

The annual percentage rate includes the lender’s base rate for borrowing money and additional costs. Understanding the components of APR on a loan can help you find the best loan product for your investment needs.

Here are the main factors affecting APR on mortgages:

  • Mortgage interest rate: The annual rate of interest is the major component affecting APR. The higher the base rate, the more you pay each month. 
  • Underwriting fees: These fees cover the costs the lender incurs to research your financial status. These checks include your credit score, income, bank statements, and financial history. 
  • Origination fees: The lender charges these fees for processing the loan application. 
  • Closing costs: You must pay fees to cover the costs of appraisers, title insurers, and real estate attorneys. 
  • Insurance premiums: Sometimes, you may be required to take out mortgage insurance. In this case, you can choose to include the premium in your monthly mortgage payments. These premiums affect your final APR. 
  • Discount points: You can pay higher upfront costs for a lower interest rate. This financial strategy can be wise if you have a loan for a long time, for example, a 30-year loan term.  

When comparing the APRs of loan offers, including all the components the lender uses in their calculations is vital.

Other factors affecting APR

Other factors affect the loan’s actual cost. Here are some other considerations:

  • Credit history: Your credit score significantly impacts the interest rate your lender offers. The higher your score, the more likely you can lock in a lower interest rate and APR. Therefore, improving your credit score before applying for a loan makes sense. 
  • Loan terms: Loans with longer terms typically result in higher APRs, as they accumulate more interest over time. Therefore, the overall cost of borrowing is greater. 
  • Down payment: A larger down payment means borrowing less money and paying less interest. Also, lenders may offer a more favorable monthly interest rate for a larger down payment. A small down payment may increase interest rates and require you to pay for mortgage insurance.
  • Debt-to-income (DTI) ratio: Your DTI ratio indicates to lenders your ability to pay all mortgage costs. Typically, financial institutions require real estate investors to have a DTI of 43% to 45%.

APR and Mortgage Loans

The APR—not the interest rate—determines the mortgage loan cost. Of course, lenders are required to tell you the APR. However, understanding how to calculate APR on a mortgage is vital for making wise investments. For example, you can look for ways to lower your APR.  

How to calculate APR on a mortgage

Calculating APR on a mortgage to determine the actual loan cost is relatively straightforward. The components you must know are the loan principal, fees, term, and interest. Next, add the fees and interest and divide by the loan amount. Then, divide the result by the loan term (days). Last, multiply by 365 and then 100 to get the percentage. 

Here is the APR calculation formula:

APR = (([fees + plus interest] ÷ [loan principal]) ÷ [loan term]) x 365 x 100

Despite the calculation appearing to be simple, it gets tricky when calculating the APR of a large mortgage over 15 or 30 years. This is because most home loans are amortized, where you pay the loan’s principal and interest. Therefore, the more you pay off the loan’s principal, the less you pay in interest charges. 

Mortgage APR example

Here’s a simple example of how APR works when calculating total mortgage costs. To make it straightforward, we will use a small personal loan. 

Let’s say an investor applies for a $3,000 loan with a loan term of six months. The interest rate is 6%, and the lender charges $50 in fees. Here is how to calculate the APR:

(($50 + $180) ÷ $3000 = 0.115) ÷ 180 x 365 x 100 = 23% APR

What about a 15-year loan for $250,000 to purchase a rental property? Let’s say the bank offers an interest rate of 8%, and upfront fees are $7,000. The investor would pay $180,044 in total interest, and the $7,000 in fees are spread over the loan term. If you crunch the numbers in an APR calculator, you will learn that the APR is around 8.46%. 

You can use this figure to compare mortgages from different lenders with similar terms. For example, suppose one lender offers a tempting fixed-rate loan of 6.5%, and the APR is 9.5%. However, another lender offers a higher interest rate, but a lower APR. You can determine which of the two deals is best over the loan term. 

A lower 1% APR could reduce loan costs of $5,000 or more over five years, despite having a 1% higher interest rate. 

What is a good APR?

The best APR depends on several factors. Mortgage lenders consider your credit score, loan type, base rate, and market conditions. For example, a shorter-term loan, like a 15-year mortgage, typically has a lower APR than a 30-year mortgage. 

How to lower your APR when applying for a mortgage

Lowering your mortgage APR can result in considerable savings over the loan term. Here are six simple ways to lock in a better mortgage rate:

1. Improve your credit score: Take positive steps to boost your credit history and get a higher score. Typically, lenders offer better APR to borrowers with excellent credit history. Therefore, pay bills on time, reduce debt, and address errors on your credit report.

2. Shop around: Compare mortgage offers from multiple lenders to find the most competitive rates and terms. Use a mortgage calculator to find a mortgage you can afford.

3. Increase your down payment: Consider making a larger down payment to reduce the loan amount and, subsequently, the APR.

4. Choose a shorter loan term: If you can afford higher monthly payments, consider shorter terms to reduce borrowing costs.

5. Consider points: You can lower your interest rate by paying points upfront.

6. Negotiate with lenders: Don’t hesitate to negotiate APR components with lenders. To make sure they secure your business, some may be willing to waive certain fees and costs.

Final Thoughts

The annual percentage rate on loans matters because it impacts borrowing costs. APR gives you the best measure by which you can compare offers from various lenders and calculate the annual mortgage cost. However, understanding APR is not only useful for real estate investors. It’s the benchmark for all types of loans, including credit cards.

Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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Rithm delivers $194M profit in Q3 amid M&A deals


New York-based Rithm Capital’s profits declined in the third quarter of 2023, when the real estate investment trust got involved in a dispute for Sculptor Capital Management and announced the acquisition of Specialized Loan Servicing.

The deals are part of the firm’s plan to become a leading global asset manager, executives said.

Rithm announced Thursday that it delivered a $194 million GAAP net income in the third quarter of 2023 — lower than the $357.4 million the prior quarter, per Securities and Exchange Commission filings. Earnings available for distribution reached $280.8 million in the third quarter, compared to $298 million in the previous quarter.

“We expect to close the Sculptor transaction in the fourth quarter,” Michael Nierenberg, chairman, CEO and president of Rithm Capital, said in a statement. In a call with analysts, he added that there’s “a lot of press around” the deal, but Rithm is “excited to get this thing wrapped up.” 

Regarding acquiring Specialized Loan Servicing for a purchase price of approximately $720 million, Nierenberg added that it “helps grow our third-party servicing business and reinforces our position as one of the leading nonbank mortgage servicers in the country.”

The company expects to close the deal in the first quarter of 2024. 

To support its acquisitions, Rithm had $1.9 billion of total cash and liquidity at the end of the third quarter.

Challenging origination landscape

Rithm is working on a spin-off in the mortgage business, which includes origination and servicing. Nierenberg said the company “is not giving up on the mortgage company,” but is trying to figure out a cheap way to manufacture more capital. 

Rithm, the parent company of Newrez, saw its mortgage business deliver a combined pre-tax income of $412.5 million in the third quarter, compared to $327 million the previous quarter. 

Originations delivered only $7 million in profits, compared to $8.7 million in Q2. Mortgage volumes increased to $11 billion in Q3, higher than the $9.9 billion the previous quarter. Gain-on-sale margins improved to 1.28% in Q3, up from 1.23% in Q2.

Analysts at BTIG said the company’s volume in Q3 is comparable to the production at JP Morgan in the period and around half of what they expect from market leader United Wholesale Mortgage (UWM). 

“We continue to think it’s likely benefited on the margins from Wells Fargo‘s exit from the correspondent channel this year, although it may be easier to see that appear in earnings if/when mortgage rates fall,” the analysts wrote in a report.

Rithm’s mortgage production is expected to be between $7 billion and $9 billion in Q4. According to the company, market conditions will remain challenging through 2024, and Rithm will continue to evaluate all operational processes to improve efficiencies and cost. 

“We’re looking at our expenses; we’re looking at retail, clearly because that business doesn’t make any money right now when you think about volumes and cost to run that business,” Nierenberg said. “But overall, we’re happy with the asset that we have; we just have to figure out a way to generate more capital.” 

Expectations for servicing 

Loan servicing contributed $444.5 million in profits during Q3, compared to $357.3 million in Q2. 

The company’s mortgage servicing rights portfolio (MSRs) totaled $595 billion in unpaid principal balance (UPB) as of Sept. 30, down from $598 billion as of June 30. 

The acquisition of Specialized Loan Servicing adds approximately $136 billion in UPB, including $85 billion in third-party servicing.  

Nierenberg said that amid the expectation of new rules, banks have to hold more capital against certain assets, which “could create opportunities for us” in the mortgage-servicing rights space. 

“I just want to point out, as we think about capital deployment, we do things strategically, where we think we’re gonna have 15% to 20% returns on our capital. If we see a package of MSRs that we think we could achieve those returns, we’ll have a hard look at it.”

The company’s stock traded at $9.35 on Thursday morning, up 4.41% after the earnings report. 



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BaseCap co-founder on data accuracy and data risk


HousingWire Editor in Chief Sarah Wheeler sat down with Nicolas Guillen, co-founder of BaseCap Analytics, to talk about data, AI and the problems we still need to solve.

Sarah Wheeler: Your background includes experiences in banking and capital markets, including working at Morgan Stanley as a credit risk manager. How do you leverage those experiences at BaseCap?

Nicolas Guillen: I met my co founder, Steve Smith, at Morgan Stanley during the financial crisis. And we spent a lot of late nights monitoring data to analyze it and then figure out: How do we prevent what will cause the next financial crisis? We did a very critical analysis. We testified at the Federal Reserve with the analysis we did to help other banks do the same type of analysis. But to get to the point where data was fit for purpose, it took a really long time. So we decided to start a software company that took the frameworks that we used and enhance data and validate data quicker.

We started working with financial institutions, just given our background. But we built the platform so that it could help validate data in any industry — we’re looking at use cases in the airline industry for example. But our first clients have all been either financial institutions or some type of mortgage company, whether it’s an investor, a servicer, or an originator — we validate mortgage data throughout the life of the loan.

SW: What are the major challenges that companies have with their data?

NG: The biggest challenge every company has is that the amount of data that’s created now is greater than all of the data created in history. And it’s because every single person is creating data. We’ve thought of data quality as business quality — it is critical for businesses to have good, accurate data to be able to make faster decisions.

In the 90s, I think the priority was to warehouse data, just have data sit somewhere. In the 2000s, the priority was making data accessible and having “big data,” if you will. But in the past five to 10 years, the priority is no longer just having access to data. Everyone’s using data, but it’s how you use it. And there have been a lot of AI companies coming out with models that help come up with insights from your data. But the pipes need to be really clean and the data needs to be completely accurate before attempting to use any type of data since business-critical business decisions will rely on this data.

That’s why at BaseCap we’re so proud of guaranteeing that data is accurate and fit for purpose before it’s used by the organizations.

SW: There are tons of people out there talking about data, there are less people who address using data to really impact your business.

NG: Yes, in fact, when we speak to clients, one of our strengths is that we relate to the pain that they’re experiencing. Business people are the ones feeling the pain, and they rely on their technology teams to be able to fix any type of data problems. Since there are so many philosophies behind treating data and managing data, we will always sit on top of databases, but which specific databases we need to sit on depends on the client. We see the data and technology teams as our partners internally and the business people as the major beneficiaries of our offering.

SW: All this data represents a lot of opportunity for mortgage companies, but also poses a lot of risk.

NG: Yes. Our first use case was heavily reliant on regulatory data — credit risk data that went out to the Federal Reserve and the OCC, and so our target was always governance, compliance, and making sure that banks are using accurate data for this type of critical analysis. As a business strategy, we’ve always targeted organizations that are heavily regulated, because data has become such a critical component of their compliance and ongoing operations. Our background empowered us to create a tool that’s built with that compliance and governance framework in mind.

SW: How is BaseCap utilizing AI?

NG: We are using generative AI to enhance the policies we use to find anomalies in data. It’s a critical part of the expansion we’re planning into new industries, which is going to be incredibly efficient because of the use of AI. The way we create all the policies to check on the accuracy of data for banks, has relied on expertise from industry experts and team members. Having the power of generative AI sourcing expertise for other industries with the proper guardrails, of course, is going to enable us to have a much leaner operation to scale.

SW: When you look five to 10 years out, what will be the next set of problems to solve?

NG: It’s hard to tell, but some of the discussions that we had at NAHREP‘s L’Attitude event involved understanding new platforms and new things being offered. And within those, we have blockchain, we have signature technology, we have background checks, credit checks that are done a lot more seamlessly nowadays. And all these things are huge innovations for the mortgage industry. And every industry is going through similar types of innovations.

But for us to be able to really see all of these come together, there needs to be a seamless and efficient integration. The orchestration of all these platforms is going to be what drives the actual change in how things are done.

SW: You mentioned NAHREP and L’Attitude, where you were part of the Matchup pitch competition last year, and they became one of your investors. What has that investment meant to BaseCap?

NG: L’Attitude has a set of partners that are incredibly influential, not only in the mortgage industry, but in tech and politics and in business. The former CEO of United Airlines is a partner. We have a team that’s incredibly involved. Gary Acosta, the co-founder and CEO of NAHREP and a partner at L’ATTITUDE Ventures, meets with us on a weekly basis to discuss sales pipeline and makes introductions from his industry network. And we have expertise sessions with finance experts and sales experts that help support our operation. It’s exactly what we were looking at in an investor: having that involvement and alignment that’s not limited to capital but that also adds day-to-day value to our operations.



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Weekly mortgage rates soar closer to 8%: Freddie Mac


Average mortgage rates on 30-year fixed home loans continued their march towards 8% this week as the Treasury yield surpassed 5%. Rates have been steadily climbing for seven straight weeks, the longest consecutive increase since Spring 2022, according to Freddie Mac‘s Primary Mortgage Market Survey.

The average 30-year, fixed-rate mortgage rose to 7.79% as of Oct. 26. That’s up 16 basis points from the previous week and up 71 basis points from 7.08% a year ago, the survey showed.

HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate for conventional loans at 7.83% on Thursday, compared to 7.78% the previous week.

“Rates have risen two full percentage points in 2023 alone and, as we head into Halloween, the impacts may scare potential homebuyers,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

“Purchase activity has slowed to a virtual standstill, affordability remains a significant hurdle for many and the only way to address it is lower rates and greater inventory.”

Elevated rates are making a dent in the mortgage volume

As mortgage rates keep climbing, mortgage applications sank to their lowest level since 1995.

According to Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), the lack of inventory and the affordability challenges are the main culprits, steering prospective home shoppers to the sidelines. 

“We expect mortgage volume to decline nearly 30% this year to $1.64 trillion, before an expected 19% rebound in 2024 as rates finally start to trend downward,” Broeksmit said in a statement.

The housing market remains resilient

However, recent home sales readings stressed the resiliency of the housing market as buyers kept shopping despite the challenging environment.

This week, new-home sales and pending-home sales posted month-over-month gains in September. However, Realtor.com Senior Economic Research Analyst Hannah Jones expects home sales activity to hover at a low level until the end of 2023.

The National Association of Realtors (NAR) also forecasts that existing-home sales will drop by 17.5% in 2023, reaching an annualized rate of 4.15 million units sold. 

For mortgage rates to improve, investors will need reassurance that the Fed will pause its contractionary policy at its next meeting next week, Jones said in a statement.



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Pending home sales up slightly in September: NAR


Pending home sales ticked up 1.1% in September despite significant affordability hurdles weighing on the market, according to data released Thursday by the National Association of Realtors (NAR).

NAR’s Pending Home Sales Index rose to a reading of 72.6 in September. Pending homes sales mirrored the trend in new home sales, which posted a 12.3% increase in September. Regionally, the Northeast, Midwest and South had more transactions in September while the West posted a loss. Year over year, all four regions saw declining transactions.

“Despite the slight gain, pending contracts remain at historically low levels due to the highest mortgage rates in 20 years,” Lawrence Yun, NAR chief economist said in a statement. “Furthermore, inventory remains tight, which hinders sales but keeps home prices elevated.”

Overview of the different readings in September

New home sales data, released Wednesday, increased significantly in September. Compared to 2022, NAR expects the sale of new homes to grow by 4.5% in 2023, reaching an annual rate of 670,000. They project it to grow by another 19.4% in 2024, hitting 800,000 new homes. For those new construction units, the national median new home price is projected to drop by 5.9% in 2023, to $430,800, and increase by 3.5% in 2024, to $445,800.

“Because of homebuilders’ ability to create more inventory, new-home sales could be higher this year despite increasing mortgage rates. This underscores the importance of increased inventory in helping to get the overall housing market moving,” Yun added.

Meanwhile, existing home sales in September fell to their lowest level since 2010, Realtor.com Senior Economic Research Analyst Hannah Jones said in an emailed statement. They dropped below 4 million for the first time since October 2010, she added.

According to Jones, home sales activity should hover at a low level until the end of 2023 sue to limited inventory and affordability challenges. NAR forecasts that existing-home sales will drop by 17.5% in 2023, reaching an annual rate of 4.15 million. In 2024, they should rise by 13.5% to reach an annual rate of 4.71 million.

For existing homes, NAR expects national median existing-home prices to remain stable in 2023. Lastly, they predict that housing starts will drop by 10.4% between 2022 and 2023, settling at 1.39 million. In 2024, it will rise to 1.48 million, posting a 6.5% gain, according to the NAR.  

As the housing market tends to cool in the late fall, the number of homes going into contract is likely to decrease in the coming months, Kate Wood, home and mortgage expert at NerdWallet, said. That is especially true in a market where high prices are combined with high mortgage rates and a depleted inventory. 



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