Baltimore Real Estate Faces “Black Swan” Event, Hard Money Lenders Warn

Baltimore has become ground zero for many failures of the Democratic Party. The so-called progressive utopia pitched by Democrats over the years has proven to be a massive lie, leaving behind a crime-ridden, deindustrialized city plagued by drugs, murder, and a collapsing population now at 100-year lows.

The latest failure to emerge from Baltimore, however, isn’t tied to the failed social-justice agenda of leftists in City Hall. In fact, cracks are quickly forming in the residential real estate market.  

Bloomberg reports that Baltimore is emerging as the first major crack in the hard-money lender residential real estate market bubble. This was fueled by years of overinflated appraisals, overextended loans, and now lenders slamming on the brakes. 

Unlike traditional mortgages, private mortgage lenders are non-bank companies or investors that provide real estate loans, often outside of the traditional mortgage system (think big banks, Fannie Mae, Freddie Mac). These companies are typically referred to as hard-money lenders because they lend based on the value or income potential of the property, rather than the borrower’s credit history. 

The report states that deals are collapsing, lenders are pulling back, and borrowers are being squeezed with short-term, high-rate financing.

Here’s more:

But faults in the system are emerging. In Baltimore, a spate of what one lender called “overinflated property valuations” has spurred some to slow down originations or halt them in the city entirely. Unlike normal mortgages, these loans are pegged to a property’s income potential, so word of abnormal appraisals set the market on edge — and it’s raising questions about which metro area could be next.

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The problems in Baltimore seem to revolve around appraisals that were improperly inflated, according to Jack BeVier, a partner at Dominion Financial, a company based in the city that lends to flippers and landlords across the US. Many of his competitors halted originations, raised rates or reduced the amount they were willing to extend for Baltimore deals, he said.

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Lenders that have taken notice include Kiavi, which in July paused originations for brokered loans in Baltimore, according to documents viewed by Bloomberg. A representative for Kiavi said it made the move “under an abundance of caution” and is “actively monitoring the market conditions to determine an appropriate time to lift the temporary pause.”

“The question everybody is asking is whether this is a black swan event or an indicator of systematic risk,” BeVier said. Dominion has no exposure to the borrowers at issue and continues lending in the city, he added.

The emerging troubles in Baltimore have sounded alarms across private mortgage lenders on Wall Street, including KKR & Co., Apollo Global Management Inc.’s Athene, and Singapore’s Temasek. These firms have fueled originations in recent years to home flippers and small-time real estate investors. 

Bloomberg data shows the hard money lending industry has swelled, generating $140 billion in debt last year and appears poised for another annual record.

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