Macro View Investing in Fintech 2024

Buckle up, fintech cowboys, because we're riding a bull named "commercial real estate" and the macroeconomic rodeo is not for the faint of heart. Sure, CRE fintech throws a mean lasso at inefficiencies, but when the global orchestra starts tuning its recession violins, those fancy algorithms can trip over some mighty tumbleweeds. Let's unpack the macroeconomic risks that could turn your unicorn valuation into a donkey cart.

1. Interest Rate Hangovers: Remember when cheap money flowed like tequila at a fiesta? Yeah, those days are drier than a sunbaked cactus. Central banks are cranking up rates to tame inflation, making borrowing for CRE projects pricier than a diamond-encrusted chaps. This squeeze can stall development, cramp exit strategies, and leave investors nursing a hefty hangover of debt.

2. Stagflationary Sandstorm: Inflation's a fickle beast, and when it cozies up to stagnant economic growth, the result is a nasty slow sandstorm. This double whammy can erode rental income, slash property values, and make long-term bets feel as secure as a house of cards in a hurricane.

3. Recessionary Blues: If the global economy stumbles into a recession, the dance floor for CRE empties faster than a saloon at closing time. Businesses hunker down, demand for space plummets, and vacancies skyrocket. Suddenly, your sleek fintech platform feels like a disco ball in a ghost town.

4. Tech Tonic Shift: Technology ain't a monolith. Trends flip faster than a trick rider on a bucking bronco. What's hot today (think VR property tours) could be yesterday's news tomorrow. Fintech solutions must stay nimble, or risk getting trampled by the next disruptive innovation. Fintech companies claim all sorts of bells and whistles that lenders, banks, credit unions, syndicators, financial wizards don’t need or want. The app or the software they are selling as sliced toast has to fit or plug in by API easily to the existing platform that the client uses.

5. Regulatory Wranglers: Governments don't always appreciate the fintech rodeo. Regulations can lasso your platform tighter than a steer in a branding iron, stifling innovation and adding compliance costs that drain your cash flow faster than a thirsty prospector at a gold mine. CFBP, SEC, FINRA, and the Federal government are fast track researching and fining everyone.

But hold your horses, partners! This ain't all doom and gloom. Smart fintech plays can weather the storm. Here's how:

• Focus on resilience: Build platforms that adapt to changing market conditions, like adjustable interest rates or alternative financing models.
• Embrace data-driven decisions: Use AI and analytics to sniff out risks and opportunities before they stampede the market.
• Target niche sectors: Don't try to herd the whole cattle drive. Focus on resilient asset classes like logistics or healthcare that thrive even in choppy waters.
• Partner with established players: Team up with brick-and-mortar giants for stability and market access.
• Stay nimble and adaptable: Be the fastest horse on the range, ready to pivot and innovate when the economic winds shift.

So, there you have it, partners. Investing in CRE fintech is a high-stakes gamble, but with the right grit, data-driven savvy, and a touch of adaptability, you can navigate the macroeconomic minefield and emerge with your Stetson still on your head. Remember, in the rodeo of real estate, it's not about riding the bull; it's about staying in the saddle when the dust settles.

Now, go lasso those fintech opportunities, but keep your spurs sharp for the inevitable macroeconomic buck offs!

So to be serious here’s the events, history and forward crystal ball facts we need to follow:

Macroeconomic factors are those factors, events, or situations that affect the national economy on a broad scale. Examples of macroeconomic factors include: 

Inflation, Gross domestic product (GDP, National income, Unemployment levels, Fiscal policy, Employment levels, International trade. 

The macro-environment is made up of six different forces: 

Economic environment, Political environment, Demographic environment, Social-cultural environment, Technological environment, Ecological environment. 

·        Interest rates

Mortgage interest rates for commercial real estate financing have nearly doubled since the beginning of 2022. Higher borrowing costs and market uncertainty have led to a decline in real estate transactions.

·        Inflation

When inflation is high, this means that prices of goods, including that of homes, are rising.

·        Credit quality

The creditworthiness of the borrower and their business has a big impact on commercial real estate loan rates.

·        Macroeconomic risk

This includes activities such as monetary policy changes, political or civil unrest, population migration, and shifts in tax regimes.

Other factors that can affect the commercial real estate sector include: 

• Economic growth
• Employment rates
• Consumer spending
• Supply and demand dynamics
• Income pressure
• Refinancing needs
• Rising costs
• Reduced operating margins
• Debt maturing over the next 18 months

 

Caroline Gerardo NMLs 324982 my opinions are my own

HELOC Lending

Navigating the HELOC Maze: Aven Financial, Prosper Funding, Figure, and Fraction Compared

Choosing the right Home Equity Line of Credit (HELOC) provider can feel like navigating a labyrinth. To help you out, I compare four popular options in the lending arena: Aven Financial, Prosper Funding, Figure, and Fraction. Four newer online HELOC Lenders VS Huntington Bank or your Bank

Interest Rates:

• Aven Financial: Competitive rates, often with discounts for existing customers and automatic rate reductions based on on-time payments.
• Prosper Funding: Rates vary depending on creditworthiness, but can be competitive for borrowers with excellent credit (you need a 721 score).
• Figure: Offers a fixed-rate HELOC with no origination fees, potentially making it attractive for short-term borrowing.
• Fraction: Rates tend to be higher than competitors, but they offer unique features like flexible draw periods and interest-only payments.

Fees:

• Aven Financial: Origination fees and annual fees may apply, but can be waived under certain conditions.
• Prosper Funding: Origination fees and annual fees are common, and vary depending on loan amount and borrower profile.
• Figure: No origination fees or annual fees for their fixed-rate HELOC.
• Fraction: No origination fees, but an annual membership fee applies.

Application Process:

• Aven Financial: Traditional application process, requiring documentation and credit checks.
• Prosper Funding: Similar to Aven, with potentially slower processing times for larger loan amounts.
• Figure: Streamlined online application process, with faster approvals but potentially stricter credit requirements.
• Fraction: Fully online application with quick decisions, but may require property valuation and additional documentation.

Features and Benefits:

• Aven Financial: Offers various HELOC options, including lines for investment properties and lines with interest-only payments.
• Prosper Funding: Strong customer service and educational resources, but limited HELOC options.
• Figure: Fixed-rate HELOC offers predictability, but limited draw period and early closure penalties.
• Fraction: Flexible draw periods and interest-only options, but high membership fee and potentially higher rates.

Overall:

• Aven Financial: Good choice for borrowers seeking competitive rates, discounts, and multiple HELOC options.
• Prosper Funding: Best for borrowers with excellent credit who value customer service and education.
• Figure: Ideal for those seeking a fixed-rate HELOC and quick approvals, but be aware of limitations.
• Fraction: Worth considering for borrowers needing flexibility, but weigh the higher costs and potential rate disadvantage.

Remember general terms and conditions for second position HELOC:

A HELOC is second position.

1. borrower had to use title insurance and have/had a first and not changed the deed DIY since the title insurance was issued. This means you could not transfer to LLC after doing your conventional loan.

 2. Are full documentation with past two years IRS taxes net income. 

Personal, S Corp, LLC all the pages 2022 2021 right now and your 2023 profit and or loss or 1099 and w-2. The whole novel is uploaded.

3. FICO standard desired is 720 mortgage middle score/ some will go lower with low DTI 

4. HELOC is a computer program, borrower fits into the boxes, little to no exceptions. If you have tricky income do not apply to one of these online lenders. You need to go to a mortgage banker who can advise as to where or what shop will accept your personal financial profile. Do not apply at several places and wreck your FICO score as the score is vital to approval.

5. prime + 2 or 3 for owner (prime is 8.5 today) max 22% APR for owner occ is 11.011 APR non owner 13.441

 The cost is low to set up.

Often an automated digital appraisal ~ so the value isn't going to hit the highest range.

HELOC is variable rate like a credit card amortized over 15 years.

HELOC can be closed if value declines or credit declines...

BEFORE YOU APPLY LET'S TALK - call me  949 - 784- 9699

I won't pull your credit but will help.

 

BAAS 2023 Wild West

Banking as a Service: Wild West Bust?

The Banking as a Service (BaaS) landscape is facing some turbulence, with whispers of trouble brewing after a period of rapid growth. While it's not a full-blown crisis, there are certainly challenges and uncertainties that warrant attention. Here's a breakdown of the current state of affairs:

Reasons for Worry:

• Overaggressive growth and shaky partnerships: The hype surrounding BaaS led to some partnerships forged without thorough due diligence. Some fin-techs partnering with banks had questionable business models or struggled with regulatory compliance. This exposed banks to potential reputational and financial risks. In 2009-10 I managed default for Wachovia Bank. If you recall they got fined $160 million dollars for laundering money for Mexican Cartels. We found money in walls, cars buried under dirt filled pools, the real wild west until the Feds took over. Bad guys want to hide their stash, the best way is to grind it through a dumb fintech app that doesn't check anything. Due diligence seems to have been overlooked in this new frontier.  
• Regulatory scrutiny: As BaaS evolves, regulators are taking a closer look, concerned about potential systemic risks and consumer protection issues. This increased scrutiny could slow down growth and impose stricter compliance burdens.
• Profitability squeeze: Many BaaS players, particularly on the fintech side, are struggling to turn a profit. The reliance on transaction fees and limited control over interest rates makes it difficult to achieve sustainable revenue streams. Even big banks are getting hit on the back side of the head with fines for over charging customers for non sufficient funds and repeating daily usury fees. These apps fail to check every state law, as well as federal regulation before they implement big charges.
• Competition heating up: With established banks and tech giants entering the BaaS fray, the competition is getting fiercer. This puts pressure on smaller players to differentiate themselves and find a clear niche. It also encourages advertising that over promises. They use gameplay tactics, prizes, puzzles all sorts of kooky gimmicks to attract. Coinbase uses influencers and pays referral fees. Crowdfunding, promises to win a supped up car, content that is not true are common. 
• Most are vulnerable to hacking and imply that the customer is safe. My son did not even know he had Zelle and someone stole from his Bank of America account which BofA did not make him whole.

However, it's not all doom and gloom:

• Strong underlying potential: The core value proposition of BaaS – offering seamless financial services embedded within non-financial platforms – remains compelling. It has the potential to disrupt traditional banking models and improve financial inclusion.
• Consolidation and adaptation: The current challenges might lead to consolidation and restructuring within the BaaS ecosystem. This could result in stronger, more sustainable players emerging.
• Regulatory clarity: Increased regulatory scrutiny, while challenging in the short term, could provide much-needed clarity and ensure responsible growth in the long run.

So, where does this leave us?

The BaaS industry is at a crossroads. While some companies might falter, the overall trajectory remains positive. The key will be for players to adapt, address concerns, and focus on offering truly valuable and compliant financial services.

Keep an eye out for these key developments:

• Regulatory pronouncements and their impact on the industry. Our government and those in EU are actively investigating and probing into every practice. Not a day goes by without a call.
• Consolidation and partnerships among key players.
• Innovative BaaS offerings that provide real value to both businesses and consumers.

 

Banking as a service has made accessing financial products and services more accessible for everyone. However, for organizations offering this convenience, there are also increased third-party risks, including cybersecurity, compliance, business continuity concerns, and the potential for reputational damage

BAAS Wild West

Trouble in Paradise: A Rundown of 2023's BaaS Woes A Few Highlights this past year:

While Banking as a Service (BaaS) has been touted as the future of finance, 2023 painted a rather turbulent picture for the industry. Here's a closer look at some of the prominent issues that arose:

1. Moonstone's Tangled Trajectory:

• From FTX to Farmington: Bank Prov's BaaS partner, Moonstone Bank, initially sought to cater to the crypto and cannabis industries with FTX backing. However, it quickly backtracked, dropping the "Moonstone" name and returning to its original moniker, Farmington Bank. This flip-flop raised concerns about stability and commitment.

2. BankProv's Crypto Stumble:

• Mining Mishap: The bank suffered significant losses from lending against crypto mining rigs, highlighting the volatility and unpredictability of the crypto market. This also exposed potential weaknesses in BankProv's internal controls and risk management practices. Last year my dry cleaner's office had a huge mine spinning because the power was stealing from a neighbor commercial. Scammy people abound...

3. TAB's Predatory Partnership:

• Puppy Loan Blues: The BaaS platform's partnership with EasyPay, a BNPL company accused of predatory lending practices, particularly targeting puppy loans, led to a downgraded CRA rating. This episode drew attention to the ethical considerations surrounding BaaS partnerships and the potential for reputational damage.

4. OppFi's Lending Limbo:

• True Lender Tussle: The California Department of Financial Protection and Innovation (DFPI) locked horns with OppFi, a fintech lender partnered with BaaS bank FinWise, over who bears the true responsibility for OppFi's allegedly unfair loans. This legal battle highlighted the regulatory ambiguities surrounding BaaS partnerships and lending models.

5. AML Woes Across the Pond:

• European Crackdown: BaaS platforms Solaris and Railsr faced anti-money laundering (AML) issues in Europe. Railsr's Lithuanian entity, PayrNet, even fell victim to regulatory action and was forced into bankruptcy. This raised concerns about the adequacy of AML compliance measures within the BaaS ecosystem.

6. Fintech Biz Weekly's Bombshell Report:

• BaaS Market Unveiled: The inaugural BaaS market report by Fintech Biz Weekly shed light on the industry's complexities and challenges, providing valuable insights but also potentially stoking further anxieties about the sector's future.

7. SVB's Fallout:

• Ripple Effects: While not directly related to BaaS, the implosion of Silicon Valley Bank (SVB) sent shockwaves throughout the banking ecosystem, including BaaS players. This heightened regulatory scrutiny across the industry, with a particular focus on banks' risk management practices and exposure to volatile assets.

These are just some of the many BaaS-related troubles that surfaced in 2023. While the industry undoubtedly faces challenges, it's important to remember that growing pains are often part of the evolution process. The key forward will be for BaaS players to prioritize transparency, compliance, and responsible partnerships to weather the storm and build a more resilient and sustainable future for this innovative financial model.

Post-Goldman & Apple's Savings Account Launch:

1. Regulatory Crackdown:

• Cross River: Faced fines and a consent order for fair lending compliance issues, highlighting the lack of due diligence within BaaS platforms.
• Synapse & Evolve: Their clients, like SoLo Funds and Money Ave, faced trouble with regulators for unlicensed lending, suggesting lax oversight within the BaaS ecosystem.

2. Consolidation & Controversy:

• Bond Acquisition: FIS acquired Bond, indicating industry consolidation amidst changing market dynamics.
• Maza's Misleading Practices: a16z, Unit, and Blue Ridge-backed Maza faced criticism for targeting undocumented immigrants with misleading claims, raising concerns about ethical practices within BaaS.
• Stripe & Celtic's Embarrassment: The unauthorized launch of the "no KYC" crypto card Laso without their approval raised questions about their control over their partnerships and compliance procedures.

3. BaaS Dependence Backfires:

• Lineage's Fall: Lineage's reliance on BaaS deposits led to financial instability and ultimately, a hostile takeover by its shareholders, highlighting the potential risks of overdependence on external funding sources.

Overall, these events suggest a growing landscape of challenges for BaaS providers, including:

• Increased regulatory scrutiny: Regulators are tightening their grip on BaaS platforms, demanding stricter compliance and due diligence practices.
• Reputational risks: Misleading practices and compliance failures can damage the reputation of BaaS providers and their partners.
• Financial instability: Overdependence on external funding sources can expose BaaS platforms to financial risks and potential hostile takeovers.

Additionally, the deterioration of the Goldman-Apple relationship underscores the complexities and uncertainties surrounding tech giants' entry into the financial services space.

 Then we also have these other events:

2023 OCC hired a con artist as its first-ever Chief Fintech Officer. How did he pass background? 

The BaaS platform Solid faked its revenue number to raise a Series B and is being sued by its investors. Liars.

Synapse and Evolve are arguing over who's responsible for some $13 million in missing customer funds.???

Metropolitan Commercial Bank got a consent order for partnering with Movocash, which fraudsters used to steal millions in COVID-era relief funds

Blue Ridge, operating under a BaaS-related consent order from 2022, announced it would seek to raise fresh capital as it reduces its exposure to fintech

Mercury filed suit against one-time partner Synapse, in an effort to recoup $30 million Mercury claims it is owed & describing Synapse as in "financial freefall."

In the Wild West of olde' times it was the hardware store that sold shovels not the digger who made money. 

How To Qualify For a Mortgage

The Home Buying Hustle: How to Qualify for a Mortgage Like a Boss Snag your dream digs without the drama

Hey, C. G.  here, and let's talk about the ultimate power move: buying a home. It's not just about bricks and mortar – it's about financial freedom, building equity, and owning your living situation. But before you start popping champagne bottles, there's one hurdle to leap: the mortgage.

Qualifying for a home loan can feel like deciphering hieroglyphics in a financial pyramid scheme, but don't sweat it, darlings. I’m breaking it down into bite-sized nuggets of wisdom you can use to slay that loan application like the financial wizard you are.

First things first: get your financial house in order. Think of it as a pre-mortgage glow-up. Here's the lowdown on the key areas’ lenders eyeball:

  Credit score: Your credit score is your financial report card. Aim for a squeaky-clean 700 or above to snag the best interest rates. Don't have stellar credit? Don't fret! Work on paying down debt, avoiding late payments, and building a positive credit history.

All credit is fixable, given patience and time. Ask about my tips and tricks to raise your FICO score which is the center pin of interest rates for your mortgage. Your mortgage score will not be the same as your consumer credit score.

  Debt-to-income ratio (DTI): This fancy term basically means how much of your monthly income goes towards existing debts. Ideally, you want to keep your DTI under 36%, and 43 for total overall. Think of it like this: the less you owe, the more you can slay that mortgage payment. Lenders include car payments, credit card bills, student loans even if deferred, child support, and whatever else shows on your mortgage credit report.

  Down payment: The more you can put down upfront, the less you must borrow (and the less you pay in interest, honey!). Aim for at least 20% to avoid private mortgage insurance (PMI), even a few thousand dollars can make a difference.

Now, let's talk loans:

You've got options!

·       Conventional loans: These are your classic mortgages, with stricter requirements but lower interest rates for well-qualified borrowers.

·       FHA loans: These are government-backed loans with more flexible credit and down payment requirements, perfect for first-time home buyers.

·       VA loans: Veterans, this one's for you!

VA loans offer amazing perks like zero down payment and no PMI.

·      

·      

Remember, knowledge is power! Do your research, compare rates, and don't be afraid to negotiate. Find a lender who's on your team, someone who speaks your language (and not just financial jargon). Let’s talk on the phone before you actually apply. Don’t allow everyone to pull your credit.

Bonus tip: Get pre-approved for a mortgage before you start house hunting. This way, you'll know exactly how much you can afford, and you won't waste time falling in love with a money pit you can't snag. This also alerts the seller that you are ready to close.

And finally, remember this: buying a home is a marathon, not a sprint. Be patient, be prepared, and trust your gut. With the right tools and a whole lot of hustle, you'll be popping champagne corks in your dream home in no time. Now go forth and conquer that mortgage like the financial rockstar you are!

P.S. Don't forget to check out my website for more home buying tips, DIY hacks, and financial boss inspiration. And if you need a little extra guidance, I have Realtor contacts, Escrow Officers, Inspectors, Credit Repair Experts, Contractors, and Attorneys who run killer real estate business in every city – we have your back when it comes to finding the perfect place to call home.

Let's go get your dream house friends!

C G

NMLS 324982