Forecasting the Future of Private Lending

As human beings, we are naturally curious and forward-thinking. We hope and plan for the future even though we have no idea what it holds. That is one of the best parts of human nature, as the poet Emily Dickinson expressed so well when she said, "Hope is the thing with feathers -That perches in the soul -And sings the tune without the words -And never stops - at all."

Though we cannot predict the future, by using past experiences, statistics, and educated insight, we can often make a pretty accurate forecast. When it comes to the future of private lending, who else to turn to for forecasts but the experts? The Rules of Thumb blog from MoneyThumb discovered this great feature article from the American Association of Private Lenders titled Forecasting the Future of Private Lending, where experts in the field of private lending share their predictions for the next 5, 10, and 50 years.

All of the experts in the article are members of the Government Relations Committee (GRC). The GRC monitors state and federal legislative activity for potential impacts to private lenders, creates and implements advocacy objectives and provides expert testimony to legislatures.

For your reading convenience, we have included the first few forecasts from experts below:

"Cort Chalfant
Nexus Private Capital, Managing Member
GRC Position: Officer

5 years // I think you will see an increase in the number and size of private lenders moving into our space as well as an increase in the “professionalization” of our sector. Existing lenders will look to scale. Emerging lenders will look to carve out niches in local markets they know. The best operators will embrace technology and work to get as efficient as possible.

As the industry proliferates and professionalizes, more institutional capital will enter the space but placed through existing, top-performing platforms (rather than from direct origination). Lenders who stay disciplined with their underwriting, reporting and back-office operations and who demonstrate the ability to manage a large volume of deal flow will be well-positioned to benefit from institutional capital. Sometime in the next five years, I also expect to see a down market.

10 years // I suspect we will witness a reduction of lending rates by hard money lenders as more institutional capital enters our sector and as operators increase their efficiency. As rates come down, margins will compress, and many small lenders will be driven out of business. Industry consolidation will likely occur through company acquisitions and cannibalization of market share by the most efficient operators that offer the best value proposition for their clients.  Our industry will have solidified a rebranding of the business. While there will continue to be predatory niche lenders, the industry will have largely matured and will be recognized as a mainstream option for capitalizing both high- and low-quality deals. Speed and ease of origination will continue to differentiate hard money lenders from more traditional capital sources.

50 years // I can’t take a stab at changes for the private lending industry over the 50-year horizon.  There are just too many moving parts—with changing political winds (and therefore the potential for drastic regulatory changes to public and private banking sectors) and technological innovation being two of the greatest wild cards.

Mike Fallot
MM Lending, CEO and Co-Founder
GRC Position: Officer

5 years // Robust private lending industry, with plenty of capital infusion and high demand to meet housing needs.

10 years // Consolidation of private lenders with traditional lenders and title companies to streamline real estate transfer costs and time frames.

50 year // Private lending used to fund housing innovation to meet massive housing needs.

Matt Gunter
RCN Capital, Assistant General Counsel
GRC Position: Legal Chair

5 years // Much of the same, probably a bigger push for e-closings or e-notary

10 years // Again, not much change, probably much wider availability of e-recording

50 years // Several coastal cities now underwater, lending in bitcoin, mortgages
on the moon"

There are forecast for the future of private lending from several other officers of the GRC in that above-referenced article from the American Association of Private Lenders. We suggest you read the full article and we hope you will take a minute to share this post on your social media page so that your peers in private lending can take advantage of these expert forecasts.