A diversified product state of mindJoe Amorosoalt-A, "A" paper, sub-prime, diversification
Previously, I talked about the importance of diversifying your
product portfolio to ensure that your business could weather the
inevitable ups and downs of the mortgage marketplace ("Diversify
your products and people," The Mortgage Press, June 2006).
Now, I'm taking that advice one step further by digging into the
mindset of many brokers to examine how some loan officers tend to
think about the sub-prime field.
Some brokers identify and market themselves primarily as a
sub-prime shop. They take a loan in the door and assume it's a
sub-prime loan. But in this super-competitive marketplace, if
you're going to be in a position to grow your business, you've got
to challenge those assumptions and expand your product offerings in
order to capture more loans.
Even if you consider yourself to be a sub-prime shop, it's
likely a number of your current borrowers could qualify for alt-A
or conventional products. So why not make it work to your
advantage? Why not, then, use your new product knowledge to pursue
a new population of borrowers?
Adding alt-A inventory
Suppose you have a customer who comes back to you with an offer
from another broker. This new offer is 100 basis points lower than
the one you originally quoted. The broker down the street most
likely determined that the borrower fit into an alt-A product, and
the borrower would be crazy not to take the lower rate.
The reality is that you not only have to be competitive in
price, but you also have to present alternative options to your
borrower if you want to increase your odds of winning the business.
Sometimes your price can be better, but your competitor is simply
offering a better product. In the end, does your customer care more
about what the product is called or whether he's getting the best
fit for his circumstances?
If you went to a shoe store with only one style to offer, you'd
likely leave. A few customers will want that one pair, but not
many. You're more likely to shop in stores with more choices. So,
the key is to present the same convenience to borrowers.
Often, that means looking strategically at alt-A and other
products instead of just sub-prime. The most successful loan
officers know that they need to look beyond the one-size-fits-most
approach and consider the entire spectrum of products. While it can
be challenging to move a sub-prime borrower into alt-A, dont
dismiss it right out of the gate.
Sub-prime vs. alt-A
Real opportunities exist where sub-prime and alt-A overlap. The
main difference is mostly in documentation. In sub-prime, borrowers
state their assets and just bring a check to closing. You examine
their mortgage history and pull two to three credit scores, but
youre not looking at lines of credit or lengths of histories. From
an underwriting perspective, all you have to have is collateral and
In alt-A scenarios, the requirements are more in-depth. You
often have to verify assets (and they generally have a 60-day
seasoning requirement), and there can be no mortgage delinquencies
from the previous 12 months. But to qualify for certain products,
all the borrower has to show is 12 months' worth of bank
statements, in order to give an idea of the average amount of
monthly deposits, and three to five trade credit lines (which can
include rental history). So if you have a borrower who has a credit
score above 620 and can meet these requirements, the alt-A option
may be a much better fit.
Target the gap
To expand your customer base and pursue a new alt-A audience,
consider tailoring your marketing and messaging to reach those who
may fall into the gap between sub-prime and alt-A. This is a
win-win situation for both you and your customers. If you can
attract slightly higher-credit borrowers, you will have more
opportunities to sell alt-A products, and they get a lower
Many non-conforming borrowers think that all they can qualify
for is sub-prime, and they may not know they have another option.
Not every borrower has poor credit. It may require some extra
effort on your part, but take the time to determine whether or not
they can qualify. If you do, it's also likely you'll generate
While it's easier to move an "A" paper borrower into alt-A than
it is to qualify a sub-prime borrower for alt-A, it can be done. If
you remain open-minded and realize that there is a product for
almost any credit situation, you can undoubtedly increase your
Joe Amoroso is senior vice president of Opteum Financial Services. He may
be reached by e-mail at [email protected]