Britt Miller

Capital Synergies podcast with Mr. Britt Miller, Vice President of Steelhead Capital.

Many of today's home loans are in the same high dollar amounts once thought of as belonging to commercial properties. We're talking about one, two, three million dollar plus loans in top markets.

To respond to the complexity of these residential transactions, Steelhead Capital has recently launched a new platform called Preferred Residential, allowing you to leverage the experience of commercial mortgage brokers to finance your residential real estate.


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DARBY: Hello. This is Darby Worley your host for the Capital Synergies talk show for real estate investors and today we have with us Mr. Britt Miller, Vice President of Steelhead Capital. Britt is here to tell us about a new type of home of home mortgage called Preferred Residential. We’re going to speak about working with a mortgage company with a commercial lending background. And we’ll ask Britt for a few insights into today’s residential mortgage market. Good morning Britt.

BRITT: Good Morning.

DARBY: Thanks for joining us. So many of today’s home loans are in the same high dollar amount one slot of that belonging to commercial properties. We’re talking about one, two, three million dollar plus loans in top markets. In so to respond to the complexities of these residential transactions, Steelhead Capital a nationally recognized authority in the arena has recently launched a new platform called Preferred Residential.

Now Mr. Britt Miller our guest he’s the Vice President of Steelhead Capital and the head of this new division. To go with this new platform Britt is also going to tell us about their new website, steelheadresidential.com. And give us some insights into the current residential mortgage market. So just to start off today, what inspired your move from the commercial lending division of Steelhead Capital into the new Preferred Residential program.

BRITT: Prior to joining Steelhead Capital, almost three years ago now, I actually came from the residential world. I was on the wholesale side where I had started my own company with a group of partners. And what brought me back to the residential world although it is very fragmented and there is a lot of different players, I really believe there is a great opportunity to educate both your clients and also to really negotiate on their behalf.

And what I mean by that is and this isn’t a knock on the industry, it’s just a reality. I think over the last 4 of 5 years with the ease of capital that’s out there I really believe a lot of loan officers were looking for the path of least resistance for they’re documentation type, etc. So I saw it as an opportunity to take some of the disciplines I had learned on the commercial sides and really go out and represent my clients in their best interest and what loan would serve them the best.

DARBY: Yeah. You’re being kind, but there are a lot of guys out there looking for the quick dollar right?

BRITT: Exactly.

DARBY: [Laughs.] Sounds like you still have the perfect set – skill set and experience to launch this new program for Steelhead yes?

BRITT: Well another things as well - what really got me into the lending world was on the residential -being somewhat of an active investor myself - I actually thought that - and this is going back a number of years ago. I did think that I kind of knew the lending world and after getting closer and closer to the business and actually sitting on the lender side I actually didn’t know a lot the nuances that were involved in a residential loan. What’s the word I’m looking for? Part of me is I enjoy doing this by all means. I’m very passionate about it but secondly I’m really able to relate to people being an active investor, buying some properties. You know I think I’m able to give some people a perspective that they relate to.

DARBY: Ok. Let’s talk about your commercial lending background. Say I’m a homeowner looking to secure one of those one, two three million dollar plus residential loans, what advantage does your commercial lending background bring to that transaction?

BRITT: You know that’s a great question and I think its probably more relative given today’s climate in the lending market as opposed to even six months, a year ago. I think over the last year there has been a lot of tightening in terms of credit in the secondary market, and as a result lenders are doing a lot more due diligence on the borrowers than they were a year ago. And what I noted earlier by having that discipline on the commercial side, and what I mean by the discipline, it’s really fact-finding, gathering all the materials.

DARBY: The qualifications are a little more stringent.

BRITT: Exactly. Yeah and then being able to articulate what you have to your different capital sources. That’s really how you do it on the commercial side. On the residential side albeit the disciplines are a lot different and your focusing more on the creditworthiness of the borrower as opposed to the assets on the commercial side.

I’m seeing especially on larger loans the amount of due diligence, and the underwriting, the scrubbing that a lot of these lenders are now doing it requires loan officers to be on their toes. And with that I mean you have to make sure that you’re gathering all the proper paperwork, you know the file inside and out. The last thing you want is a surprise, i.e. the guy has a knock on his credit report. Where to be honest with you a lot of lenders, over the last few years didn’t necessarily have to go through a credit report closely. You know if his credit scores were there. So I think again just underlying it’s really the due diligence and the discipline in being able to serve up the package to the appropriate lenders. To make sure that you are finding a lending partner that can deliver.

DARBY: Let’s just talk about - let’s dive into the idea of actually getting a residential loan. I understand there are many ways to structure a residential loan? How do we determine the best possible financing for each person’s needs, each buyer’s needs?

BRITT: I think the first point is everybody’s level of expectation is a little bit different. Everybody wants the best terms. I think it’s very important to understand what is important for somebody and a perfect example is I had a recent closing done in Southern California where my client truly believed and I support this as well, if he was able to purchase a multi million dollar property for couple hundred grand less than what it was truly worth.

We had a situation where there was some moving parts with the seller who had to come to the table with actually some dollars because he was actually selling it for less than what his loan amount was. And in that situation the objective was we needed to close the sale in a short period of time so my number one priority was certainty of execution, I had a very tight timeline. Certainty of execution at the best terms that I could get.

DARBY: So does that usually bring with it a higher interest rate?

BRITT: You know what in this particular situation due to the lender that I went with, because I do a lot of volume with them I was very comfortable. I articulated back to my client I didn’t really think we were giving up a lot. I still covered the market. I probably took that deal to 5 or 6 different lenders and I still think at the end of the day we still came up with a loan that was very aggressive given the market.

DARBY: Right. So that also speaks to the years of experience you have. You’ve got relations you can draw upon I imagine to get the best deals for your clients?

BRITT: Well you know you hit on a really good point and what I find is and I think this is just the nature of all businesses, a lot of times you’ll find people that - and rightfully so that deserves the best deals that are out there. And I think when you net it all out, an effective mortgage broker you have to have confidence that they are going out and representing you in your best interest.

My approach is I’m not going to take a loan to the lender I do the most business with because I know I can get it closed. There are certain times when that approach is necessary but I think at the end of the day, if you know that your going out and covering the market and this is a discipline again that I think is transferable from the commercial lending world to the residential world.

If you’re covering the market your saying to your client that. “Hey I’ve gone out, I’ve talked to some portfolio lenders, I’ve talked to a couple local banks, I’ve talked to some lenders that are going to sell this. This is going to be a Fannie loan, etc. Here are the pros, here are the cons.” What I’ve actually done, this is for a larger transaction down in Palo Alto where home prices are two and a half million upward...
DARBY: Yeah.

BRITT: My client who is very sophisticated, you know - I took a template I use on the commercial lending side which outlined, you know - I think I took it to 8 or 9 different lenders. I showed the pros and cons of each, what the terms were, what the lender costs were, what the margin was going to be after the loan went from its ARM period, or from its fixed period to its adjustable period and I think that by demonstrating this to my client this is what I do behind the scenes, he was very comfortable with me.

DARBY: Yeah, yeah. You know you can’t really turn on the television these days without hearing about all the sub prime lenders and all the chaos that has been caused in the residential market. What do you think about all that talk and how much impact do you see this having on residential loans going forward?

BRITT: You know it’s…I think it’s been inevitable for quite some time and I think it’s a real wake up call pretty much for the entire industry from appraisers to loan officers, to underwriters, to processors, to borrows. And what I mean by that is honestly everybody’s affected right now. Yesterday there was an announcement from a large, large lender, who I would consider in the top five stating that on August 6th cumulative loan devalue for stated borrowers is being capped at 80 percent. We’re talking - that’s a significant change in the industry.

DARBY: And we saw that the stock market felt that yesterday. It’s not just the lending industry, it’s the whole economy!

BRITT: You know it’s an interesting time as well because, and I want to make sure people don’t take this the wrong way, I really believe and I touched on this earlier. You know the market has been this, it’s like there’s a loan for everybody. That has really been the approach.

DARBY: Right.

BRITT: And now it’s getting back to basics. Its getting back to an effective loan officer when they have some down time, when they’re not prospecting, or they’re meeting with the client, or they’re not putting together a loan package, you have to be on the phone with your lenders. You have to understand what is the underwriting criteria. How are they treated stated self-employed borrowers? What are they doing with the full borrower who has five separate entities? You have to really get into the nitty gritty and understand what are these lenders going to be looking for? It’s not as simple now as - the industry got so how should I say this - lax is probably the appropriate word.

DARBY: It was a thing like a free for all, yes.

BRITT: It got to a point where a lot of – you know, and again the lenders have to take responsibility for this as well, if you rewind and I’ll go back to 2004 which was not that long ago when I was on the wholesale side, there was not a significant pricing discrepancy between the - between showing no income and no asset verification versus going stated, stated. I mean literally stating what somebody makes and stating their assets. The lenders, the market had priced it maybe an eighth maybe a quarter difference. And as a result of that the entire industry was trained to go down that road.

DARBY: Right.

BRITT: Why would you do a ton of heavy lifting where the loan might not go through when you’re going to get maybe an eighth to a quarter break? So what’s happening now is like the brakes have been put on. Loan officers are now being required to reevaluate their pipe line. Reevaluate the type of borrowers their working with and at the same time you have to go back and reeducate some of your borrowers. It may be a year before somebody’s in a position before they can refinance.

So I think an effective loan officer in this transitional period has to be very proactive with their clients because, you know, it may take a twelve month period where we need to restructure you assets so you liquidity is sufficient to refinance out of your ARM that’s coming due August of ‘08.

And I think that in itself the last people who are going to figure it out is the borrower unfortunately and it’s the people that are in the business that are seeing this unfold on a daily basis. There’s literally been significant, significant press releases or announcements, for lack of a better word over the last 60 to 90 days that are paramount when comparing it to a year or two years ago. A year ago you could get 100 percent of devalue up to basically a million bucks. Some of the lenders may be a little bit less. You could go stated, stated, with a 620, 640 FICO score up to a 100 percent CLTD. That market is gone.

DARBY: Yes. And what I keep hearing on the news is that they were unscrupulous loan officers that were. I mean this was not in your loan market at all but borrowers were really kind of taking on way more than they can chew and not really understanding what they were signing up for.

BRITT: You know it is. You’re walking a fine line. I mean we’re talking about over the last few years a significant amount of money where if you’re sitting down with somebody and they’re looking at a $700,000 - $800,000 loan, depending on how you price it out, let’s just assume, you know you are talking a point, point and a half. That’s a loan officer that’s staring at possible $8,000-$12,000.

DARBY: Yeah.

BRITT: And I think everybody in the industry would agree if we’re being honest with ourselves, that there were some borrowers that probably should not be getting the loans. Especially if you looking at sub prime loans.

DARBY: So if I were looking to purchase a home right now what kind of advice would you have for me to obtain the best financing possible given current conditions.

BRITT: Find out what you can afford.

DARBY: Right.

BRITT: Find out what is going on in the market especially in the dynamic market that we’re in right now. And I’m a big believer that there always going to be transactions regardless of the market. It is pretty fluid.

But I think just as important you need to align yourself with an agent and that might be a referral of your mortgage broker, it maybe a referral of a family friend. Make sure you are engaged with somebody that knows the market that you’re in. And what I mean by that is at the end of the day an effective loan officer can definitely save you some money by all means but it’s just as importantly you need to make sure that you’re buying the right property at the right price.

I’ve seen some people repay by $50,000- $75,000 because they’re caught up in the moment. And I think that really pales in comparison to maybe a loan officer that’s doing your deal for an extra quarter of a point that may amounts to $2,500 dollars. But you’re going to turn around and pay an extra $75,000 for a property.

DARBY: Yeah. And I think it’s always good to have an objective opinion. When you’re buying a house there’s a lot of emotion involved, you know?

BRITT: Absolutely. And I think you bring up a really, really key point. You know when I go out and work with people and that’s whether it’s a real estate agent or whether it’s an attorney, whether it’s an accountant, a doctor, whatever it may be. I’m really paying somebody for their advice. If somebody’s just going to sit there and tell me sure you can do that. Yes you can do that, that’s not necessarily the type of person I want to align myself with.

And what I mean by that and how it relates to the business I’m in is I really believe there’s a lot of options out there people can work. There’s big banks, there’s Bank of America. Charles Schwab even has a lending program. There’s credit unions, there’s mortgage brokers, etc.

The advantage I think you really have is with the mortgage broker and I’m assuming here if the mortgage broker is engaged, their doing a lot a business, they have strong relations with their lending sources, the advantage you have is with a broker is this is somebody who’s doing it day in or day out. Their opinion should not be biased. Their opinion should be purely objective.

If Washington Mutual is the right loan for that given situation, Washington Mutual is that lender. If Aurora Loan Services due to the fact that it’s a non-owner occupied or going high LTD, they might be the appropriate lending source.

So my point being is as a starting point for somebody that’s maybe getting into the market for the first time or maybe somebody’s going through a transition and i.e. their starting their own business. Maybe they’re getting out of a particular field they’ve been in for 15 years, maybe they just made a large investment and their liquidity has been affected, I believe a starting point is a mortgage broker, they’re going to be able to give you a really good sense on what their options are, what their alternatives are, what it may cost them, what they may have to give up. And from there I would recommend go out and talk to a direct lender. See what they have to say.

DARBY: Ok. If our listeners want some more information about the Preferred Residential program, tell us the website again.

BRITT: It’s www.steellheadresidential.com.

DARBY: And are there some tools out there to help people kind of get started on the path to know what they can qualify for? What’s all available to our listeners on the website?

BRITT: What I would recommend as a starting point right now, I mean, I think it’s a very personal business. Everybody’s situation is a little bit unique. We will have on the website different loan programs that are available. But I firmly believe a 15 to 20 minute conversation can uncover a lot of information. A 15 minute conversation - let me restate that can basically replace 45 minutes to an hour maybe of going out and researching on your own.

DARBY: Great. Well, Britt, this has been a very helpful discussion on residential loans and your new program called Preferred Residential from Steelhead Capital. Thanks for taking the time to speak with us today.

BRITT: Thank you so much.

DARBY: And again congratulations on the launch of the new website www.steelheadresidential.com.

BRITT: I appreciate it. Thank you.

DARBY: This has been Darby Worley. Your host for Capital Synergies. We’ll see you next time.