The mortgage industry has evolved. The conventional mentality that rates alone drive business is no longer the case with today's borrowers. With the influx of self-employment, less job stability and atypical work situations, documentation types that don't require income, asset and employment verification are not only needed, they are essential. Over the past few years, this has become even more apparent as the industry has become less of a competitive rate market and more of a solution market, providing opportunity for homeownership through customized programs and products, rather than having the best rate. Simply put, today, you must look at alternative sources in mortgage lending to stay competitive in the marketplace.
Meeting the needs of all borrowers
There are many opportunities that exist with alternative documentation types, based on credit score criteria and other loan qualifications. It's not uncommon for a borrower with less than 24 months of self-employment, who has five percent down and a 620 credit score, to look for a loan; or for someone with a 580 credit score and no down payment to need financing at a high LTV. These types of individuals may obtain financing through these alternative-lending products. It is critical to understand that in this market, the borrower may still be able to obtain financing although they may not fit the agencies' mold. It is even more important to meet the needs of these types of borrowers, since the refinance market has dried up in the last six to eight months. As a mortgage professional, your goal is to maintain a high lead-to-application ratio. By offering a broader spectrum of products, beyond the 30-year fixed loan, you are able to "app" more borrowers which, in turn, provides you with the opportunity to potentially close more loans.
Alternative loan options
One of the best options to meet the needs of today's borrowers is non-conforming mortgage products. While many people may define these differently, these are products that will offer the consumer, through different doc types, options they need to finance a loan. These options include Full Income/Full Asset, Stated Income/Full Asset, Full Income/Stated Asset, No Ratio, Stated Income/Stated Asset, No Income/No Asset or No Doc loans. What makes these products so ideal is that you can find a loan for nearly every type of borrower. With these types of products, you must first understand your borrower's situation and what you have to work with (what they need, what they want, what you can verify, how many years are they going to be in the home, etc.) Once you have the answers to these and other questions, you can find the most appropriate loan. This is why we refer to alternative doc loans as "loans of opportunity."
Non-conforming mortgage products offer borrowers a plethora of choices, including interest-only options, which can be an appealing type of loan to some borrowers. Interest-only loans are designed to offer borrowers the lowest payments possible, as they are not initially paying any of the principal of the loan. This, in turn, allows the borrowers to purchase more home than they would if they had went with a fully amortizing loan for the same length of time. Interest-only options are just one type of mortgage, and while this option isn't right for every person, it can be an ideal solution for the borrower not looking for a fully amortizing loan with a fixed rate and term. Today's borrowers need options and the more options you can provide, the more loans you are likely to close.
Offer a full product line
Other types of alternative lending opportunities exist, including down payment assistance programs offered through the Federal Housing Authority and programs for those with special occupations. There are great programs for teachers or police officers who want to buy a property in the city where they work. With the help of a second trustee, they can maintain and pay for their home for a specified number of years and then reap rather large benefits. Additionally, affordable housing programs are available for those who may not be able to purchase a home through traditional channels. Although these are a small part of the mortgage business and can be limiting, they still have the potential to meet some borrower's needs and are another example of thinking outside-the-box. You shouldn't, however, rely on specific niche products. With a full product menu, you will find the right products to meet the needs of all types of borrowers. The variety of products available today offer a wealth of opportunity to the consumer who wants to own real estatenot just owner-occupied properties, but second homes and non-owner-occupied properties as well. In today's marketplace, everyone who needs a loan should have the opportunity to get one.
Lisa Schreiber is chief administrative officer of American Brokers Conduit and has served on the Maryland Association of Mortgage Brokers Board of Directors. She can be reached by e-mail at [email protected].