Downtown-based Lendistry, a non-bank lender for small businesses, has expanded its operations into the housing realm by launching Lendistry Home Loans (LHL) earlier this month to provide loan opportunities to underserved communities and easy-to-access financial literacy content.
LHL will provide residential mortgage assistance in California, Georgia, Illinois, Maryland, Pennsylvania and Texas through its fully online platform. By this time next year, the company estimates it will have provided $300 million in funded loans.
Since its founding in 2015, Lendistry has been involved in a number of initiatives including administering more than $4 billion in Covid-19 relief funds to small businesses and partnering with Amazon.com Inc. to support its small business sellers.
Lendistry Chief Executive Everett Sands said LHL is another avenue to further Lendistry’s overall mission of expanding access and closing the wealth gap through loans.
“This is about wealth building, and home ownership is shown historically to be one of the biggest avenues of wealth building,” Sands said. “So small business and home ownership, at least from where I stand in trying to help people build wealth — that’s what we’re really interested in.”
Loan sizes offered
LHL will offer both conforming loans in the amount of slightly higher than $1 million and nonconforming loans of about $3 million.
Sands said he recognizes the strain high interest rates are putting on both small business owners and those struggling to make home ownership a reality. On average, interest rates for a fixed mortgage are sitting at 6.6% nationally compared to 3.8% five years ago.
“Interest rates are not just a small business issue; they’re a housing affordability issue, and so we should take an active role in trying to make sure that responsible capital is available for those who want to own a home, refinance a home, et cetera,” Sands said.
Catering to the needs of each home loan applicant, LHL will consider an individual’s financial standing and determine the program best suited to take them on a path to home ownership. The company plans to offer conventional purchase and refinance loans, as well as several options for non-traditional borrowers including Federal Housing Administration and Department of Veterans Affairs Interest Rate Reduction Refinance loans.
While LHL maintained that FICO, a credit scoring model developed by Fair Isaac Corp., is not the end-all-be-all for whether someone will be approved for a loan, there is a minimum credit score requirement of 620 for the program.
“There are risks associated with any loan. From our experience in business lending and studying the patterns of the small business owners’ ability to pay Lendistry back the debt provided, we feel comfortable with the risk associated with undercapitalized communities,” Sands said.
He added that LHL is “building up a network of CDFI (Community Development Financial Institutions Fund)- and HUD (U.S. Department of Housing and Urban Development)-approved home counselors who will be able to help in the event of financial troubles for our borrowers.”
As for risk, Moussa Diop, an associate professor of real estate at USC, said LHL’s loan model doesn’t differ much from standard lending practices, though he did speak to the differences between small business lending and residential mortgage lending.
While lenders are more likely to keep small business loans on their books and continue to have a partnership, Diop said, with mortgage loans, the lender needs to sell the mortgage at a profit which then limits its ability to reduce the cost of mortgages for borrowers. Nevertheless, he noted other benefits for borrowers.
“Really the advantage here for those communities is just having somebody to talk to and somebody who can really help them access programs they didn’t know about. That could be something quite valuable,” Diop said.
Diop also pointed out that since the 2008 financial crisis, non-bank fintech lenders have increasingly expanded into mortgage lending, making the process for borrowers easier and more convenient due to their online presence.
Taking a data-drive approach
Sands noted that traditionally, underserved and undercapitalized communities can find paperwork they aren’t familiar with challenging to navigate. That’s why the company plans to utilize its position as a fintech to track data to better understand program reception and streamline the home loan application process, taking cues from user data to better improve its services as the program continues to develop.
For example, Sands explained that if a section of the home loan program application is expected to take less than a minute, but the data shows most users are pausing there for 10 minutes, that could be a cue to adjust that section to make it more user-friendly.
“How do we innovate? How do we change the game, and then how do we think about leveraging data to make an even bigger impact?” Sands said.
An important aspect of Lendistry’s services is not just supplying capital but providing clients with financial education on homeownership. Sands used to teach classes about homeownership back when he lived and worked in Washington, D.C. and emphasized the importance of learning about the transition from being a renter to being a homeowner. In terms of navigating an appraisal, inspections, the underwriting process and more, there can be a lot to learn, he said.
In the same way LHL plans to use data to improve its online application process, it will apply this knowledge to the education portion of the program as well.
Looking at multiple lenses
Sands views Lendistry’s operation through three lenses: product, process and policy.
“As we dig deeper into the home mortgage industry, we’ll take that same strategy. Is there a product misalignment for what’s available? And that could be something as simple as a gradual interest rate concept (or) a step program as you’re adjusting from paying rent to home ownership,” Sands said.
As for process, Sands said this is all about seeing what fits best with the customer base in terms of their preferences for seeking assistance, information dissemination, processes for collecting documents and filling out paperwork.
Policy centers around the systems in place to execute on goals. For this program, policy shapes how LHL will view down payment assistance programs, Sands said.
“Maybe it should be a down payment, maybe it should be an interest rate buy down because interest rates are high right now or maybe there should be some combination of both,” Sands said, adding that LHL will also work closely on this with local, national and federal stakeholders.
Working with underserved communities
Diop touched on the benefits in investing in communities that bank lenders may not always target, both for the communities and for Lendistry.
“It may be much easier for fintech companies to target those areas, and the fact that (Lendistry) already knows these areas – they have been providing small business loans – they definitely will have a competitive advantage there. The advantage is really access and basically allowing those communities to have somebody to talk to regarding their funding needs. That’s definitely going to be a plus,” Diop said.
Diop also mentioned how this initiative relates to housing supply and demand. If demand in these areas increases with community members able to purchase homes, perhaps developers will take interest in building in these communities.
This new home loan program comes on the tail of significant growth for Lendistry. It is one of the largest non-bank lenders in the nation based on loan approval amount. Nationwide, Lendistry increased from 110 loan approvals in 2023 for a total of $56.6 million to 783 approvals in 2024 for $127.3 million so far, according to Aug. 19 data from the Small Business Administration.
With Lendistry located in an opportunity zone, which is defined as an economically distressed community, Sands feels the company is able to circulate money inside of the community. Simply put, one example is when people working at Lendistry spend money around the area.
Sands said he hopes the company inspires more businesses to grow.
“Are we going to bring billions? Probably not, but I think every little bit counts. And I think that’s the beauty of small business again, in terms of job creation, job retention and then economic delivery – being part of that economic ecosystem,” Sands said.
