When non-conforming fitsJoe Amorosonon-conforming loans, sub-prime, alt-A Let's be honest for a minute. A borrower comes to you with a decent credit score and a well-documented, stable employment history. Which loan product folder do you instinctively pull out of the drawer? If you're like the majority of brokers and loan officers, the answer is simple: Conforming. The portfolio is smaller, the products are simpler to explain, and in most cases, you can use automated underwriting engines that offer nearly instantaneous approvals. Plus, because of preconceived notions about conforming products, you are likely to think the rates and terms are better. You also reached for your conforming product folder because sub-prime and alt-A make you think about lower credit scores, higher rates and alternative income verification types. Or maybe you consider yourself a conforming shop and have just avoided other loan products. These biases extend throughout our industry, and we maintain them often at the expense of our customers and our own businesses. More than just rate, customers want to feel that they got the best loan for their particular situationno matter how our industry classifies the loan. These days, you can be reasonably sure that most consumers are well educated when it comes to the different types of mortgage programs. Brokers and loan officers lose loans to other shops that do their homework and offer a wider variety of options to each customer. The most important first step in tailoring a loan program is listening to the borrower's needs. What is the goal? Lower payments? A cash-out refinance? Minimize a down payment? Next, try to get your borrower the best rate available with a reasonable profit built into it for you, the originator. If the borrower qualifies, pursue a conventional mortgage and the rate that goes along with it. But don't stop there. Look at the full range of products. Don't rule out non-conforming options even if the borrower has a solid credit score or a well-documented income. Many times, depending on the borrower's characteristics, non-conforming options offer better rates and terms than conforming. Consider these examples: •At a credit score of 680 and above, with a lower loan-to-value (LTV), sub-prime pricing may be better. In this scenario, wholesalers are currently offering adjustable rates below five percent and fixed rates below six percent. •Most lenders use risk-based pricing for sub-prime loans, which means there is no need for mortgage insurance at LTVs greater than 80 percent. This can be a significant issue for many borrowers. •With a conforming loan program, the borrower must often demonstrate significant reserves, and underwriters require full income verification. Sub-prime loan variations include stated income, lite-doc as well as full-income varieties, offering many more options for the borrower. One thought you may be having at this point is that your 680-plus borrowers would walk out the door if you tried to sell them a sub-prime loan. We have not conducted a national poll, but I'm reasonably sure that most borrowers are not label-conscious when it comes to their home loans. They want loans that help them achieve their goals, with the best possible rates and terms. And if automated underwriting engines are causing you to overlook non-conforming, stay tuned. You can expect them for non-conforming loans later this year. Wholesalers have heard you loud and clear. It may be easier said than done, but set aside your rigid definitions and preconceived notions about non-conforming loans and the non-conforming borrower. These days, alt-A and sub-prime offer true alternatives to conventional lending. Take the time to find the best overall financing package for your borrowers, and you'll have customers who keep coming back and keep referring you when they hear of others who need mortgages. Joe Amoroso is a senior vice president with Opteum Financial Services. He may be reached by e-mail at [email protected].