Subscribe via:
Show Summary
In this episode of the Real Estate Pros Podcast, host Kristen Knapp interviews mortgage lending expert Mark Davis, who shares his extensive experience in the industry. Mark discusses his journey into mortgage lending, the importance of non-traditional loans, and the current state of the real estate market. He emphasizes the significance of understanding different loan options for those who may not qualify for traditional mortgages and provides insights into market trends and investment strategies. Mark concludes with advice on the importance of long-term investment in real estate and other assets.
Resources and Links from this show:
-
-
- Investor Fuel Real Estate Mastermind
- Investor Machine Real Estate Lead Generation
- Mike on Facebook
- Mike on Instagram
- Mike on LinkedIn
- Mark Davis on Facebook
- Mark Davis on LinkedIn
- Mark Davis’s Phone Number: 805-953-7589
Listen to the Audio Version of this Episode
Investor Fuel Show Transcript:
Mark Davis (00:00)
you know, like what was it that Mark Twain said? I think, you know, the rumor of my demise has been greatly exaggerated. I mean, everybody’s been calling for the market to crash for…Years and years. I mean, I remember in 2017 specifically, a lot of the clients and realtors were like, oh my God, this is going to crash. This is ridiculous. And I didn’t really have that opinion. there’s always a lot of doom and gloom. I’m not going to say it’s not going to happen. It can. But.
I mean, we’re kind of in a different place right now. We’re coming from a position of lots of equity. So the lot, I think they say, I don’t know the numbers for sure, but I’ve heard that there’s like 40 % of mortgages are free and clear. So.
Kristen Knapp (00:41)
Mm-hmm.Mark Davis (00:53)
properties are free and clear, 40%. That’s a lot. And there’s been a historic amount of wealth that has been created in the last years and it’s been transferred. So that wealth has been transferred to…the new generations. you know, moms and dads and grandmas and grandpas, you know, I mean, it didn’t, you didn’t even have to be an astute investor. You just had to buy a property and, you know, the sixties or seventies even, and
You you created a lot of wealth
Kristen Knapp (03:03)
Welcome back to the Real Estate Pros Podcast. I’m Kristen and I’m here with Mark Davis, who is a 30 year mortgage lending expert. So we’re going to get into the ins and out of everything. He has such great experience. Thank you for being here, Mark. So let’s go back to the beginning. How did you get into this line of work?Mark Davis (03:14)
Thank you.Probably in the, I want to say early 90s, real early 90s, I started as a retail mortgage broker loan officer. And then…
Kristen Knapp (03:30)
And what about,yeah, what about the industry drew you to it? What about the industry?
Mark Davis (03:34)
Excuse me. ⁓ Well, I mean,was, you know.
Basically, at that point, it was just pure 100 % commission. So, you know, kind of, and I had freedom, obviously, because you didn’t have a salary. So you didn’t, you know, nobody could tell you where to be or where to go. So that was, that was interesting to me. And then I always liked to have, you know, my success or failure.
Kristen Knapp (03:44)
bright.Mark Davis (04:03)
on me, not on someone else. So even as a youth, I was into kind of sports that weren’t, I was a professional motorcycle racer when I was younger. So, you know, I always liked the fact that I had to rely on myself and I didn’t, I wasn’t really that big of a team sports because I played team sports, but you know, when we lost, if I played good,Kristen Knapp (04:06)
Totally.Mark Davis (05:15)
but we still lost, that used to kind of infuriate me. So I wanted it all to be on my shoulders, success or failure. So that’s why I wanted to help people. I’ve always kind of focused on the people that couldn’t get a traditional loan. So I’ve always worked for, I did originally in retail, I tried to focus on.Kristen Knapp (05:22)
Yeah, absolutely. think that’s a really…Mark Davis (05:40)
some of the, you know, back then they didn’t really have other sources, but they had a little bit. So I would try to focus on getting people that, you know, needed help and couldn’t just get a cookie cutter loan. They couldn’t go into Bank of America and get a loan. They had to go to a mortgage broker to try to help them, you know, structure the deal. And then as, as time went on, I worked at ⁓ the savings and loans.Kristen Knapp (05:50)
Right.Right.
Mark Davis (06:06)
which were kind of the first, you know.⁓ non-traditional lenders. So if you went to Bank of America, couldn’t get a loan, I’m just using that as an example. you know, then you would go to a savings and loan. They were called portfolio lenders. So they would lend their own money and they would hold the mortgages themselves, collect the payments themselves. And so they could make loans that maybe others wouldn’t do because
You know, they were the ones holding the actual loan. So that was kind of the first, you know, easier money lenders were the portfolio lenders, SNLs. So there was like world savings and loan, great Western savings and loan, home savings and loan. Those were kind of the original, you know, easier underwriting standard lenders. So I worked for them.
And then I also worked for some of the, you know, now it’s called non QM, which is non qualified mortgage. And those would be loans that don’t fit into traditional guidelines. I’ve always kind of helped, tried to help the people that couldn’t go to a normal source.
Kristen Knapp (07:10)
and what to…Yeah.
Yeah, what would constitute is not under a traditional guideline.
Mark Davis (07:19)
Well, I mean, basically anything that can’t be sold to Fannie Mae and Freddie Mac.which are your major residential mortgage lending giants. They’re government subsidy or quasi-government. So they have a specific set of guidelines, debt to income ratio, credit, fully documented loans. So in other words, W-2s, pay stubs, tax returns. If you don’t fit in all those areas, then
Yeah, you don’t get a qualified, what’s called a qualified mortgage. And then, go ahead.
Kristen Knapp (07:51)
Well,I was going to say it must be really fulfilling and gratifying to work with people and really help them, you know, when, you know, the traditional.
Mark Davis (08:01)
Yeah, I mean, it has been through theyears. I needed to, I bought my first home in 1994. And yeah, it was kind of difficult to get along. We went to Bank of America, I think it was, or one of the big banks at the time. And they said, you need 20 % down. And we didn’t have 20 % down.
Kristen Knapp (08:15)
Right.Mark Davis (08:26)
at that time. we needed a lower down payment and we found ⁓ actually an REO through home savings and loan and they had their own financing for that property and so it was a 10 % down at that time an adjustable rate mortgage which not a lot of those nowadays but so you know they helped us.qualify that, you know, with only 10 % down. So I mean, I kind of experienced it myself, you know, and then so that was kind of my drive from then on was, I want to help people get loans that maybe, you know, they can’t get traditionally. And that’s kind of what’s hurt me for the last, you know, 30 years, more than that, actually.
Kristen Knapp (09:40)
Absolutely.That’s amazing.
Yeah, and I think that, I mean, it’s important for people to even know that the options are out there. What do you find a lot of these people who aren’t necessarily qualified for a traditional loan? What are the misconceptions? I bet you get a lot of people who just give up.
Mark Davis (10:00)
Probably, I mean, they need to probably end up talking to a mortgage broker. And then that is somebody that’s gonna place their loan, work with them to get it structured so that they can use non-traditional sources. I mean, since the financial crisis, there has been what’s called ATR, which is ability to repay.So basically, you have to show in the early 2000s, it was like the Wild West in lending, so they had put an end to that that caused the financial crisis. But there’s non-traditional qualifying methods. One for investors is the debt service coverage ratio product.
And then for other traditional borrowers, they have ⁓ bank statement loans where they can take their bank statements and look at those and determine that they have the ability to repay via that. maybe they can, know, a lot of times back, even in the early days when World Savings was doing loans, you know, they would say, hey, you know,
If your tax returns are, you know, like this high, you know, it can be difficult to read them and it’s difficult for the lender too. They have to go through all that and look at every single, you know, corporation tax returns and they can be difficult. so they used to say, hey, if you’ve got really good credit and you’ve got a sufficient amount of down payment or loan to value, we’re going to just…
you know, and you’ve demonstrated the ability to pay your loans in the past, we’re going to assume that you can pay it in the future. So a lot of times that and then, you know, like self-employed income can be pretty tricky as well. I mean, a lot of times, you know, you write off things that, you know,
Kristen Knapp (11:37)
youRight.
Mark Davis (11:54)
you actually use. your tax guy might say, hey, you’re going to have a big tax bill this year. You need to go out and buy something. So you do. And then you get to maybe it’s a big truck that you need to tow your materials in. But you probably use that truck too. So it’s kind of like, hey, we need to write this off. In actuality, know.You’re using that product, so it’s income kind of for you, but it’s not considered income. It’s an expense. So that lowers your income. Other things that you purchase might be.
like they can depreciate things. So depreciation is basically writing down the cost of something that’s acquired. In actuality, you’re not really spending money when you’re depreciating. You’ve already bought the asset. So you’re depreciating the asset. So, you know, that is money that’s spent, but not it’s not coming out of your cash flow.
But as far as traditional tax returns are concerned and income, it’s not showing his income on your tax returns. So therefore, you’re not going to be able to qualify in a traditional loan. But someone that looks at it differently and says, you know what? I mean, they use common sense. So they’re like, OK, he’s only showing this much income, but.
He’s depreciating all of this. Interest can be an expense as well, which isn’t really affecting your cash flow. ultimately, it is, but not on a monthly basis. So those are just things that they look at and try to make sense and say, hey, does this person really have the ability to repay this loan, aside from traditional methods?
Kristen Knapp (14:22)
Amazing, I think that was a lot of really good advice you just gave. I mean, you have such a diversified background as well. You’ve been in the investment baking world, you’re in the wholesale world, you’ve done a lot of different stuff, so you have a very well-rounded perspective of the whole process.Mark Davis (14:38)
Yeah, I mean, I’ve been in investment banking with Morgan Stanley. I’ve been at just regular banks, savings and loans, consulting work for some private equity firms for due diligence, small business administration underwriting. So yeah, and then obviously wholesale mortgage lending.So yeah, been kind of touched a little bit of everything through the years. And I was a licensed real estate agent as well. did back in the 2008 crisis, the banks got a lot of REO. So I was an REO agent as well. So sold a ton of real estate owned by the banks.
Kristen Knapp (14:57)
youMark Davis (15:19)
and then did some investing back then as well buying properties and then also I own a property in ⁓ Southern California.Kristen Knapp (15:28)
Well that’s amazing. mean you really do have such a well-rounded expertise on it and you you’ve been in the game for long enough. As you said you’ve seen the market go up and down. What’s your perspective on the market now for people who are a little hesitant and you know hesitant with interest rates?Mark Davis (15:44)
I mean, you know, it’s kind of like,you know, like what was it that Mark Twain said? I think, you know, the rumor of my demise has been greatly exaggerated. I mean, everybody’s been calling for the market to crash for…
Years and years. I mean, I remember in 2017 specifically, a lot of the clients and realtors were like, oh my God, this is going to crash. This is ridiculous. And I didn’t really have that opinion. there’s always a lot of doom and gloom. I’m not going to say it’s not going to happen. It can. But.
I mean, we’re kind of in a different place right now. We’re coming from a position of lots of equity. So the lot, I think they say, I don’t know the numbers for sure, but I’ve heard that there’s like 40 % of mortgages are free and clear. So.
Kristen Knapp (16:29)
Mm-hmm.Mark Davis (16:41)
or properties are free and clear, 40%. That’s a lot. And there’s been a historic amount of wealth that has been created in the last years and it’s been transferred. So that wealth has been transferred to…the new generations. you know, moms and dads and grandmas and grandpas, you know, I mean, it didn’t, you didn’t even have to be an astute investor. You just had to buy a property and, you know, the sixties or seventies even, and
You you created a lot of
there. And, you know, so that’s being passed on to the new generation. And now we have a lot of wealth that’s been created by stock markets. Yes, they go up and down as well. But, you know, if you look at a long term perspective, you know, they’ve gone up.
So there’s a lot of wealth that’s been created in the stock markets. There’s a lot of wealth that’s been created in the real estate markets. There’s a lot of wealth that’s been created in the new cryptocurrencies. I’m not an expert in that at all. I’m an old guy, so that’s kind of out of my wheelhouse. But the wealth has been created there. And then a lot of the technology.
Kristen Knapp (17:34)
Right?Mark Davis (17:57)
has created, you could have been a receptionist at Microsoft in the 90s and you’re now a multi, multi, multi-millionaire because of your shares that you were provided. So I mean, even entry-level jobs, those people have extreme amounts of wealth now. So there’s a lot of wealth sloshing around out there.Kristen Knapp (18:13)
Right.Mark Davis (18:18)
money naturally goes to a good performing asset. It’s just you don’t have to make a decision about it. Nobody can tell it what to do. Liquidity naturally follows and goes to a good performing asset. So real estate’s still at this point a good performing asset, even if we dropped 20%, for example.You know, we’d still, mean, sure, most recent people would be hurt on that. You know, in the last year or two, if you bought in the last year or two, obviously, that wouldn’t be fun. But, you know, if you bought four years ago, 20 % wouldn’t even really dent you. You’d still be in a really good equity position. So I feel like a lot of people nationwide
are in extremely good equity positions, you know, because of the values of real estate going up. So, I mean, I don’t feel like it’s like the financial crisis. We’ve got the ability to repay law that’s been in place. So, you know, the funky mortgages haven’t really been happening. The LTVs have been reduced. Remember those mortgages were
you know, qualification-wise, and they were zero down. So, you know, nowadays, if you don’t qualify in a traditional sense, you have to have a skin in the game. You’ve got to put, you know, 10%, 15%, 20%, 30%, 30 % down, none. So, you know, that has changed the market as well. I don’t feel like that, you know.
There’s a situation of that being hindering the market. And then also the amount of equity that everyone does have. just feel like people are in a position where they’re probably not going to walk away from equity. So I feel like the market’s in a pretty good place. mean, yeah, the interest rates are high. And yes, it is.
you know, prices are high as well. But I mean, take for example, for investors, I feel like these, you know, three unit, four unit, five, six, seven, eight, nine, ten unit properties are pretty even in even in high value areas. They still cash flow well because rents have risen so much.
So if you have four units that are renting at $3,000 a month, that’s $12,000 a month in income coming in. And a payment on that property, even though it’s a high amount, still way below what you got coming in. So these three, four unit properties, even in places like Southern California, qualify and have a
Kristen Knapp (20:38)
Right.Mark Davis (21:05)
of income coming in to make the payments. So does that mean that we’re not going to have a downturn? No, I mean, obviously, I mean, we have them. I mean, and there’s different reasons for those. So I don’t think this one is because of bad lending or any funny money that was going on in the past. That is not a reason anymore.So can the fear and grief get involved? Well, sure they can. mean, you know, if people get scared, you know, they sell. And let’s face it, real estate, just like stocks, just like bonds, there’s a buyer and there’s a seller. And if there’s more sellers than there is buyers, prices go down. If there’s more buyers than there is sellers.
Prices go up. There’s no denying that in any market, any asset market. So can that happen? Sure. Can people get scared and there’s no buyers? Yeah, everybody still kind of wants a piece of the American dream no matter what everybody says. that’s…
Kristen Knapp (22:00)
way.Mark Davis (22:14)
undeniably, you know, puts a little bit of a floor in the market. Now, you know, we need probably interest rates to come down to make the houses that the prices that are out there are more affordable.Kristen Knapp (22:25)
Yeah, well, I I like hearing about optimism in the market and I think that you have a really great point and, you know, things go up and down all the time and the best time to get into the game is always now. So this has been awesome. I think you’ve given people a lot of good advice on just like different options if they’re lower income and you’ve obviously given such great insights on the market as well. Where can people find you?Mark Davis (22:50)
Yeah, my phone number is 805-953-7589. And I’m pretty old school. I answer the phone. And I’ll leave it with a quote that I truly believe. And that is that it’s not timing a market. It’s time in.Kristen Knapp (23:00)
Yeah, great. ⁓That’s really good advice. ⁓
Mark Davis (23:15)
Soif you hold something for a long period of time, real estate, stocks, bonds, what have you, you’re going to do well. If you’re trying to get in and get out and, you know, time markets, you know, that’s a difficult thing to do. So, you know, longer term investments are always a pretty good investment. But I mean, a lot of the investors are nimble and they can get in and get out and, you know, they feel comfortable with that. But.
Kristen Knapp (23:23)
Right?Mark Davis (23:40)
for just a normal long-term horizon is the best horizon to make money in all conditions in all markets. -
