Big lenders are crashing the DSCR party and private lenders are watching closely

“These aren’t dumb people,” he said. “But there’s definitely a difference versus how you would assess risk in a typical conventional loan. Inherently, they haven’t dealt with concentration risk and some of those things that we have since the beginning of residential investor lending becoming institutionalized.”

He said the underwriting considerations that come with investor lending, including concentration risk, market-specific conditions, and the distinction between performing and non-performing local inventory, require accumulated experience that does not transfer automatically from conventional lending.

“They’re still kind of coming at it with a broad brush,” he said. “At the end of the day, those guys know mortgages. It’s just a function of — are the nuances at some point at scale going to be problematic or not? We’ll see.”

Fertig said the question will be whether these larger lenders are accounting for the risks that private lenders have been identifying. Accounting for some of those risks is one of the reasons why the National Private Lenders Association came up with its watch list to try to identify potential fraudsters.

“We’re biased, and we think we’ve taken all of these remarkable steps to deal with what we’ve seen as the real risks and what have caused losses and where severities are coming from,” he said. “And then you’re seeing these big guys come in and just don’t even acknowledge any of it. And we’re sitting there going like, ‘You just have to wait until it happens.’”