Latest / Real Investor Radio Podcast / Mini Breakdown | From 30 Days to 10: Reinventing DSCR Lending
Transcript
- Craig (00:01) Hey, welcome back to RIR Briefs. I'm here with Jack Bavier. Jack, good to see you. Jack, we're talking DSCR today. All things DSCR. I think, ⁓ well, Lord knows, Jack, we do a lot of DSCR loans here at Dominion, have for a long time now. We're one of the top lenders in the business for DSCR originations. And Jack, let's talk about the pain that some investors feel when doing DSCR. Jack BeVier (00:05) Yes, sir. Yes, sir. Happy Monday. Craig (00:31) It's not an arduous process, Jack, but it is one that involves an appraisal. Got to get an appraisal. And then we got to collect some docs. And sometimes the doc collection grinds to a halt. Folks may be a little slow. Maybe they're not so organized with getting us over the docs we need. But Jack, think we've developed a pretty good process here that I know you've been working very, very hard on to streamline that process. for DSCR and I think we have an announcement today regarding how fast we can get these loans done and I thought you would share that with the folks on everything that we've been working on. Jack BeVier (01:09) Yeah, sure. So, I mean, as real estate investors ourselves, right, we have a rental portfolio in Baltimore and we continue to add to that rental portfolio. So we're borrowing on term debt ourselves. And, so from that perspective, we lived the pain, you know, prior to the DSCR loan of having to work with local banks, right. ⁓ from, you know, when I started in the business in 2007, It was a difficult, or it was actually, was pretty easy in 2007, right? But 2008, 2009, it got much more difficult. Yeah. And the, um, and it never, it never got better, right? It just got harder and harder and harder. So from 2008 to 2019, um, the worst part of my job was, was getting the, getting our refis, right? But it was also like a crucial, like from a cashflow management perspective, it's like, Craig (01:39) Yeah, it got really hard after that. Jack BeVier (02:04) literally the lifeblood of the business is cashflow. So being able to get those refinances timely, you know, literally the business stops if we can't get our refi is timely, right? So that, that pain and that stress is like deep, deep inside me, you know, ⁓ lived it, lived it for 15 years. And so it was such a breath of fresh air when the DSCR loan came out because the underwriting was so simple. ⁓ you know, just what's your FICO, what's your deal. insurance, taxes, lease in place, bada boom, bada bang, you know, and all of a sudden we're talking about 30 day timeframes. Like when it was the banks, was 90, 120 days, you it was, ⁓ you you'd take 75 days to get to loan committee. It was awful. ⁓ so the DSCR loan was a breath of fresh air. That said, we're humans and we all adjust to, ⁓ we all adjust to the kind of the new normal relatively quickly. And so Craig (02:36) Hi. Jack BeVier (03:00) the, that 30 day timeframe is like decent, you know, is, fine. You know, three weeks, 30 days is fine if, if everything goes smoothly. But when you have a use case or, know, a particular property that doesn't fit into all of the DSCR loan purchasers box, um, you know, if it's a little bit of an edge case of the loan, you can start to get, feel like you're getting strung along, right? Because, and really what's happening there is that you're your particular situation is a little outside of the norm, a little bit side out of the box. And we've got to, and you've got to like write that loan for a particular loan purchaser and the market is thinner. And so you want to make sure that you don't screw anything up and people start covering their ass is what, you know, is really what happens, right? Because they're like, I can Craig (03:45) Right and to put it in other words Jack, it's like as the originator of these loans we have to check all of the boxes for the note buyers who we sell to. And if you have something that's sort of fastballed down the middle, you know, it goes pretty easy and we do a lot of those. But there are a lot of edge cases where property might be rural, maybe we're having a hard time getting comps, maybe they don't have great rental history, maybe they've got some weird entity structure, maybe they've got... And like we still have to check all the boxes and sometimes we have to get exceptions for boxes that aren't even there. And that's when we start to run into sort of like, Hey, what's going on here folks? You guys said you could get this thing done for me. And you know, we're 30 days. Right. Jack BeVier (04:26) Right. You messing with me? Yeah. Yeah. I'm just trying. I thought you said you could get this DSCR loan. You're like, you messing with me? And yeah, it's, it's, we're not, you know, but it's, you know, when you get these edge case loans, that that's can be the, that can be the process or that can be the feeling from a borrower's perspective from time to time, especially like when you find out something along the way, right? Like when the appraisal comes back and you find out some issue and you have to move between loan products, that's an annoying process because while it, while it is the best loan product for your particular scenario, right. And that, that we think that that we put a lot on that, right. Like making sure that your particular scenario is getting the best pricing available in the market. ⁓ is something that we're like, is really a cornerstone to the way that we approach closing these loans. But that said, when you're pivoting from one loan program to another, because of a particular nuance or situation, ⁓ we, it can be the case that that pivoting to that new loan program is things can get lost, right? Like, you know, we pivoted to this program because that's a non warrantable condo. And hey, good news is we've got a solution for you for this non warrantable condo. Problem is that the you know, the DSCR based off of the, you know, based off of that particular condo fee is less than this particular loan purchaser's minimum. so we have to go at get an exception because it's a 1.18 instead of a 1.20 debt service coverage, right? Like stupid shit, right? But, but hey, these loans are ending up in securitization. And if you wanted a common sense approach to underwriting, you can go back to the, know, to the, frankly, you can go back to the commercial banks and deal with their 120 day closing process. Right? So it's a bit of like lesser of evils, right? ⁓ I'd rather, I'd rather deal with a little bit of hoops, but get it done inside of 30 days. then be able to make my argument to someone who's actually making a credit decision, but it takes four months. So, your poison. Craig (06:28) So let's talk about what the company has been working on for the last year really to one, understand what the process is and try to then just create a better customer experience for the DSCR ⁓ folks that are buying properties with DSCR, Jack, and folks that are refining properties with DSCR. So the way I look at sort of the bigger components of doing a DSCR loan, Jack, is you get a loan quote. You give us some details about the property and we generate a loan quote for you. That's process. That's sort of number one. Number two would be you decide you want to move forward with it and we order the appraisal and start collecting docs. So we'll call that appraisal and docs. And then it's really a brief processing period once we have the full package and then we move to closing. So speech. So I think that was four major categories of sort of getting through a DSCR loan. talk to our potential ⁓ borrowers, Jack, about what Dominion specifically has done to make that process, all four of those processes easier. Jack BeVier (07:39) Yeah, sure. So the, ⁓ the piece that we've been, that I'm the most excited about is the, is on the underwriting side of things. So we have been working on these AI models, right? That's one of the topics that, that Craig, you and I talk about week over week, can tell we're doing something with it, right? I hope you're doing something with it. ⁓ and we have been, we've been, we've been creating, ⁓ AI models to help with, to help ease the burden of the DSCR underwriting process and to be able to navigate. all the programs that are out there in a seamless way, such that the borrower doesn't know that, you know, there's 15 different sets of guidelines that we're considering when we place your particular scenario. And AI is just an absolute, it's like built for that. is like such an incredibly, it's a perfect use case for that concept. And we fell in love with that idea over a year ago and we've been like, singularly focused on making this work. And so, ⁓ excited to be able to say that all of our loan processors at this point are using our AI driven tools to underwrite DSCR loans, such that when you send in your documents, those documents are being immediately analyzed and analyzed against the particular set of underwriting guidelines that for the program that you've been quoted and any issues that might exist are surfaced immediately, right? Like in three minutes, not Hey, we'll read that document later. As soon as that document comes in, boom, it's analyzed right in that moment. So if there is an issue, we're going to find out about it immediately. If we need to pivot to another program, we're going to do that immediately. And immediately upon pivoting to that new program, we're going to analyze all of those documents against that new program, against that program to make sure that there isn't anything that might've gotten missed in that pivot. And so we think that that's going to eliminate a lot of the later in the stage ⁓ delays that have come up in the past at whichever originator you've been working with. ⁓ Because the long no, Like getting a no late in the game is the enemy, right? Like that is the worst case scenario, right? Like you tell me no on day one, I'm not happy about it, but boom, but it's still day one. I got my whole life in front of me. dragging my ass out for three weeks and then telling me we've got an issue or asking for another doc three weeks in. It's the devil. Like it's the worst. It's, it's, Craig (10:12) I'm a guy who I'm coming up ⁓ on a deadline on my hard money loan and I've got this place done and rented and I want to just I want to get it refied right and if I get a quote over to a borrower and it's a good quote but then we find out a few days later that maybe it doesn't fit and then a few days later after that we got to re-quote the thing and now we're like 10 days into this thing and we find ourselves in a place where we have to say no. You're saying that the AI that we have built is going to alleviate much of that, if not all of that, because when the borrower sends in the docs, those docs are sucked into our proprietary AI, and it not only reads all of the docs, it conditions them, it approves them, making sure that this name matches this name on the lease, and this bank statement matches that on the title. It's really brilliant. I've seen it work, Jack, and maybe you could speak just a little more to it. Jack BeVier (11:13) Yeah, no, that's exactly it. It's being able to do that analysis instantly so that we can give you a confident yes or a confident no on day one. That's the point of it, right? So I'm really excited about that. And so as a result, we are very confident that if you're providing your documents quickly, timely, day one. Craig (11:33) Wait a minute, don't let the cat out of the bag yet, Jack. We're not quite there yet. Let's talk about, quickly Jack, part of I think some of the consternation that our borrowers and frankly loan officers have as well is this sort of like, ⁓ I got to send this doc over to you to sign. I've got to get you to, let me send this one over to you. Let's make sure you got the appraisal and the appraisal gets to you. And like there's a lot of back and forth that I would love for you. Let's just talk briefly Jack quickly about like our word decides to do the loan. They give us the credit card so that we can order the appraisal. You know that credit card authorization needs to be signed. There's a small loan app that frankly our loan app for DSCR takes five minutes to complete literally and that has to be I believe signed. so talk about how we're you necessarily have to tell them everything Jack but talk about how we're streamlining sort of the onboarding docs as well. that need signatures and approvals and things like Jack BeVier (12:34) Yeah, so that entire approval process, the other thing that we've been working on with AI is that it's really enabled us to build out user interfaces, right? UIs that are amazing, right? We literally couldn't have done it previously. It would take years of teams of developers to build what we're now able to build in weeks with layman. so, please. Craig (12:59) I give a brief example, So imagine you're a real estate investor and you work all day wearing all the hats and you come home and you finally get to lay in bed and you're on your phone and you happen to see a DSCR ⁓ ad from Dominion. Well, as you're filling out the ad, sort of like, hey, I'm interested in getting a quote. ⁓ We've developed ⁓ user interfaces that are so much more user friendly, Jack. you'll stop me if I'm getting too far here. But you start typing the address, it fills in the address. It then also then brings up all of the data for that house. We know what the taxes are, we know what the square footage is, we know what the estimated ARV is, we know what census tract is in. We know everything about the house and that can get populated in the user interface. To show you the borrower, that we understand the house just as well as you do. Maybe we don't own it, but we definitely know the house that you're talking about. And frankly, even if you have a portfolio, we can do the same. So from a user interface standpoint, just sort of getting the loan quoted, Jack, I think it's going to be a what? Less than five minute process to get a quote on a house for DSCR. Jack BeVier (14:18) Yeah, exactly. Yeah. And, and we're taking the scenario that you've input. We're comparing them to 13 different programs that are available and making sure that based off of, know, again, based off a year scenario, you are getting the absolute best price for that DSCR loan. And, and so these things are tied together, right? So like we make sure we say, Hey, tell me about your scenario. Now I know which programs that scenario is eligible for. Craig (14:28) Yes. Jack BeVier (14:48) Immediately we price all of those programs that your scenario is eligible for and return pricing so that you can see, Hey, here's my best price. It's 65 % loan to value, 70 % loan to value, 75 % loan to value. And so you'll, you'll, you'll, you're seeing the entire market instantly, right? Without, and it's not just, Hey, what, this is the price for product day, but you don't qualify for it. It's Hey, base, you tell me data points on your scenario. And we know that your scenario qualifies for that loan product. And then we know what all of the available quotes are for you. ⁓ and so, and like you said, and delivered instantly at two o'clock in the morning, when you, when you're, know, when you should be asleep and you're scrolling in bed next to your wife, you know, that's that you. Yeah. You can price your DSCR loan then, ⁓ not speaking from personal experience there at all. but yes, Craig (15:33) And you finally have your free moment of the day. Yes, exactly. none whatsoever. Jack BeVier (15:44) We're really excited about that. And the, also that user interface, you can get through it very, very quickly, because everything that can be API, right? Everything that could be connected to another system is every, there's no going outside of the system to sign a document or to grab a piece of information. Everything's pulled into that one place. You validate that what, that everything we've pulled in is, accurate and say, Hey, get me a quote. You got that quote. You're like, you know what? That looks good. Let's move forward. You order the appraisal. ⁓ you've got your opera, you know, you've got your laptop up and you've got your operating agreement and the lease that just got sent to you by your property manager. You upload those documents and we're off to, I mean, we're off to the races and you're immediately getting feedback from our system about those documents as well so that you don't find out that. Craig (16:32) That's right. Jack BeVier (16:34) Again, three weeks into the process, Hey, there's some language in your operating agreement that the cert, this particular loan purchaser doesn't like blah, blah, blah. Right? Like all that stuff is going to be immediately surfaced so that we can get in front of it. And the idea here is that like in one working session, you can be clear to close, right? Like we're waiting for the appraisal and title to come back. And then I'm like, Well, then let's pay for rush appraisals and rush these title orders and let's get this, let's get this thing closed, man. Right. Like appraisers are looking for work. Title companies are looking for work. Like if I tell them, I want to close on Friday and I'll pay you know, 200 bucks to an all Dominion will pay 200 bucks to get that appraisal back a little faster. Let's do that. Let's get this though. Let's get this thing through. ⁓ so that is, ⁓ that's the direction that we're going. And the portal on that side is going to be launched here in just a couple of weeks, but, ⁓ I'm very excited about that. Craig (17:29) What's big announcement though that ⁓ for delivery times, Jack, from I'm in bed, I get my quote, I put in my credit card number, ⁓ everything's off to the races. How fast do you think we can close these loans given the technology that Dominion has built? Jack BeVier (17:46) Yeah. So today pre portal, pre rush appraisal pre rush title, right today in this moment, 10 days is very comfortable. 10 days is fine. If you're the, you know, the asterisk there is you're providing the documents, right? So if we're, if we're, if we're, if we're chasing you down for three weeks for the lease, well, Hey, the 10 days doesn't apply, but you send me those documents. You have your, you have your shit together and you send me in your file. We're closing that loan in 10 days where you call me. ⁓ but, we're very confident that, ⁓ that, that, we can hit those closing timeframes. And I'm looking forward here in just a couple of weeks to making them even shorter. Craig (18:25) Yeah, I honestly Jack, it's something that we've talked about for over a year now or close to a year, I guess. And the amount of work that Dominion has put into standing up these tools. You frankly, Jack, when it wasn't so easy working with AI, was great for crafting a better email. But if you really wanted to do some hard work with it, you needed guys who really learned how to work it and manipulate it and put it to. better use cases and ⁓ our friend and coworker John McClellan has just been awesome with that. you know, the guy never wrote a line of code in his life and he's developed some of the coolest AI tools that think you and I both have ever seen, frankly, right here under this roof. And it's just crazy. And I'm so excited for our customers to see this, Jack, especially on the DSCR side, because, know, look, tell it like it is, Tell it like it is. You got 14 different note buyers, you got 14 different guidelines. It is impossible for any human to memorize them all because they're changing all the time. You've got an appraisal, you've got people that have to review the docs, you've got people that, you know, the bar word that has to submit the docs. Anything can go wrong during that process. And I truly believe with all my heart that we've developed tools now that take a lot of that sort of guesswork and minutiae. and sort of frustration out of the process for the borrower and just creating that much better customer experience that we've talked about for a very Jack BeVier (20:00) Yep, that's exactly right. That's what we're going for. Craig (20:03) What's exciting, man. So tell folks when they can expect Jack to ⁓ start being part of this awesome new DSCR process here at Dominion. By the way, if anybody needs a loan, please reach out to me at Craig at thedominiongroup.com. Love to help. Jack BeVier (20:18) Yeah. No, we're, we're, we're good. We're ready to go. Now the entire processing team is working with the AI tools literally as of this morning. We've been baiting for them for the past month to make sure that all the Kings were worked out. But, now we, we, we launched it to the entire team. We're excited about it. And, ⁓ so yeah, DSCR loans are closing inside of 10 days now. And you know, with, with shorter timeframes to come. Craig (20:42) All right, folks. Well, I hope you guys enjoyed that. If you have any questions at all, please again, reach out to either Jack or myself. I'm ⁓ Craig at TheDominionGroup.com or Jack at TheDominionGroup.com or leave a comment. We'd to hear from you, especially if you're out there doing DSCR refis or purchases on either single family or multi-family up to 10 units portfolios. Please let us know. We're one of the largest originators in the country for DSCR and we'd love for you to be a part of our new process. So see you on the next one.