Received an email with all the essential info yesterday!
Please see the February 2022 update below:
Apologies for the slightly late post. I will spend a little bit of time on macro market commentary, because its not much changed from January. I will focus the majority of this post on the various improvements we are making to continue to institutionalize our business. Here is a brief overview from the February 2022 realtor update:
- The national inventory of active listings declined by 24.5% over last year, while the total inventory of unsold homes, including pending listings, declined by 15.3%. The inventory of active listings was down 62.6% compared to 2020 before the onset of the COVID-19 pandemic.
- Newly listed homes were down 0.5% nationally compared to a year ago, and down 0.7% for large metros over the past year. While annual new listings growth was on the verge of being positive, sellers still listed at rates 13.8% lower than typical 2017 to 2020 levels prior to the pandemic.
- The February national median listing price for active listings was $392,000, up 12.9% compared to last year and up 26.6% compared to February 2020. In large metros, median listing prices grew by 7.8% compared to last year, on average.
- Nationally, the typical home spent 47 days on the market in February, down 17 days from the same time last year and down 32 days from February 2020.
Next, I will discuss the steps we are taking to increase transparency and continue to impelement measures to institutionalize our operations.
- Hired a CFO, goal is to help us improve our finance, create models to help project and plan for growth and fundraise. He comes to us with experience at Goldman Sachs, Paypal and other enterprises.
- Engaged with Iron Mountain custody. The purpose is to have all of our paper loan closing docs (we already have all docs digitized) stored at an institutional grade custodian, and the RWF team has access to view and recall any of the paper loan documents.
- Improved and implemented assignment and allonge docs, this was reviewed and approved by RWF team. These documents should be in line with the “true sale” requirements of the newly published guidelines.
- Opened accounts with Signature Bank, which will allow direct fiat fund flow to intermediaries like Circle via Signet, help us keep funds more secure and transactional costs down.
Loan Originations in Tinlake
New Loan USD Volume: $3mm
Average Originated Interest Rate: 8.7%
Average Tinlake Finance Fee: 6.0%
Average Loan Amount: DAI 318,954
Average Loan to Value: 62%
Average FICO score: 703
Average Term: 12 months
Loans Paid Back: 11
Current MakerDAO Debt Ceiling: $20mm with about $14.3mm used
90+ day late: 0
Migrated to Portfolio Analytics v.9, see screenshot above. Restarted Tinlake integration work.
Hired a CFO, a full-stack developer and a loan processor. We are now a team of 15!
In this monthly update, I will focus on briefly discussing company updates, and spend some time on explaining how New Silver is thinking about real estate and adjacent markets in the short and medium term, how we are thinking about the macro-economic environment, and how we use data to forecast our credit environment.
Markets are adjusting to the higher rates, housing supply is still much lower than demand, materials are ever more expensive, housing prices continue to appreciate. We do not anticipate a repeat of the last housing crises because the fundamentals are very different today. We are tightening the credit box and making a few adjustments to be on the safe side.
Good news - New Silver has signed a $20mm term sheet with an institutional structured finance lender with $2b+ AUM, we are now going through due diligence. If the deal goes through, the lender will be in the mezzanine position, strengthen New Silver’s position as a lender, opening up opportunities for growth, and speaking to our efforts over the past year to create a unique, valuable offering and institutional-grade processes.
New Silver was the first pool to go live on Tinlake and the first “real world” asset voted in by the MakerDAO community, and our team has worked tirelessly building and improving on the 3 Ps of Credit - People, Process, Policies. We are now more than a year in, with no defaults, a better process, a bigger team, and agile credit policies. With the next leap, we believe the DAO will be even more protected as a senior lender, and will benefit from a robust process we are developing in conjunction with Centrifuge and in consultation with the RWF team.
Lets touch on the macro housing market trends and increasing rates. First, let me say that we know what our borrowers (real estate entrepreneurs) want: quickly accessible capital that is competitively priced, and a fast, convenient process that can be (mostly) done online. This is what we are/will continue to deliver. We were never the most nor the least aggressive lender, we are “middle of the road” on rates and leverages, but we are faster than most others. In an increasing rate environment, we hope to also become more competitive on rates viz a vie utilizing the Maker vault, but at the same time, use data and technology to choose the least-risky borrowers and projects to finance, thus creating a win-win scenario for everyone involved.
- Research on “hard money” lenders from 2008-2013 timeframes, showing that our competitors had overall defaults of <2% with 1% average, and we believe market conditions were more adverse back then - we had a general recession, housing supply stood at 9-12 months in 2008 vs <6 months today, and personal savings are much higher today, so consumers have more money saved up.
- We believe that lack of supply will continue to drive price appreciation, or price stability, and this will allow for very small principal loss even in cases of defaults, as evidenced by a large bridge loan aggregator (<50bps principal loss on 4.4% foreclosure rate)
- However, housing is getting less affordable, though because of the supply constraint, we do not believe we are in a “bubble” territory at this time
- Banks have loosened some of their underwriting, allowing more people to obtain a consumer mortgage, but not to the level of pre-2008 crises. This bodes well for consumers who buy homes from our clients.
What New Silver is doing in the short term
- We believe FICO scores are great measures of borrowers ability to repay debt, they have been used for many years and have undergone many stress tests. Our portfolio is in the Prime category with an average of 700+, so this is healthy. We are increasing the minimum allowed credit score to 650 (from 620) for borrowers with experience, and 700 (from 680) for those without.
- We are decreasing the maximum LTC on ground up/heavy construction loans to 85% (from 90%) for non institutional level borrowers
- Increasing the profitability test to ensure the project will be profitable for our borrower even with a 5% price correction.
- Continuing to pay close attention to material pricing, this is partially driving up per square foot renovation costs, we review budgets closely and ensure that borrower has sufficient budget in place to cover possible increases in the coming few months.
Loan Originations in Tinlake
based on origination date
New Loan USD Volume: $4.4mm
Average Originated Interest Rate: 9.1%
Average Tinlake Finance Fee: 6.4%
Average Loan Amount: DAI 320,776
Average Loan to Value: 72%
Average FICO score: 716
Average Term: 12 months
Loans Paid Back: 12
Current MakerDAO Debt Ceiling: $20mm with about $13.6mm used
90+ day late: 0