Robert Trent says the mortgage broker business is gaining ground as banks retreat from construction lending, leaving builders with fewer bank facilities and tighter terms. Single-family residential construction and land development loans are now more than 50% below their 2008 peak, and that shift is forcing builders to look beyond the banks that once led the market.
Trent on bank withdrawal
“The banks are really retreating from the space,” Trent said in an interview. He said homebuilders are worried that banks will not continue to be there in a meaningful way to capitalize their homebuilding needs, after lenders increased deposit requirements and reduced the size of the facilities they offer.
That retreat comes after single-family residential construction and land development loans peaked at $204 billion in 2008. The latest move has left private lenders and commercial mortgage brokers filling a role that used to sit behind the banks, with Trent saying the flow of capital has flipped.
Private lenders take the lead
“We used to be an overflow — their primary source of capital was the banks, and we were an overflow as a private lender to them,” Trent said. “The inverse is now happening where they're asking for us to finance a lot more and have the banks as their overflow or backup plan.”
He said the collapse of Silicon Valley Bank accelerated the retreat, while regional lenders tightened deposit requirements, cut facility sizes, and lowered leverage. The result is not just fewer loan options, but a different order of operations: private capital is being asked to move first.
Four million-unit shortage
Realtor.com said the U.S. housing market is running roughly four million units short, and Trent argued the constraint is not interest rates but how many homes a builder can produce in a year. A bank might cap a builder at 4 unsold homes in a 50-lot community, while a private lender might allow 10 unsold homes.
He said builders can sell two houses a month as long as they have finished inventory, and if it takes five months to build a house, a lender may allow 10 specs. In his example, a builder could start two homes a month and have two finished houses by the end of month five, which gives the lender room to underwrite more production if the market can absorb the output.
Wall Street capital enters
Trent said institutional capital has moved in to take up some of the slack, but the hurdle is finding a reliable, scaled platform that underwrites the risk appropriately. He also said the post-Global Financial Crisis withdrawal of larger banks created a structural gap that regional lenders have not been able to fill, and that FDIC pressure on commercial real estate exposure makes a banking comeback unlikely in the near term.
Monday’s numbers from the National Association of Home Builders showed a streak of pessimism that he said mirrors the foreclosure crisis of the early 2010s. For builders, the practical question is whether private lenders and commercial mortgage brokers can keep financing production at a scale that the banks no longer want to carry.
