In 2013, six years after the sub-prime crisis had played out, lenders tested the waters by reintroducing a new, safer non-prime product to mortgage markets. Early uncertainty on the viability of non-prime was quickly stamped out as both borrowers and investors demonstrated a healthy demand for the products.
Despite early success, non-prime lending activity was fairly tame throughout 2014. In 2015, however, the market has really started to take off. Lenders and borrowers alike are catching wind of non-prime product availability, fueling both supply and demand for non-prime products.
Even though there are still only a few lenders that are exclusively underwriting non-prime loans, a handful of traditional lenders have jumped on the bandwagon in an effort to get a piece of the potentially enormous non-prime pie. Though consumer credit quality has continued to strengthen over the last few years, nearly a third of Americans with a FICO score are under 650 (according to FICO as of April 2015).
It’s tough to put an exact number on just how big the non-prime market has grown. Aggregate data for the U.S. non-prime market is limited because there simply aren’t any reliable sources available that track the market. However, anecdotally speaking, things are ramping up. We feel that our in-house statistics paint a fairly accurate picture of the market.
Angel Oak Mortgage Solutions’ year-over-year stats:
►Closed loan volume for 2015 is on pace to more than triple 2014 volume.
►Our approved network of broker companies has grown by more than double, from 540 to more than 1,200.
►The list of approved states in which we are lending has grown from 20 to 24.
►We’ve doubled our staff of account executives to more than 30.
►Our Web site traffic has tripled from an average of 67 visitors per day in January to more than 200 per day today.
►We receive more than 1,000 loan scenario requests per month through the online “Quick Quote” tool.
We expect 2016 to be even bigger than 2015 for non-prime. As the sour taste of the housing crisis dissipates, the general public will warm up to learning why it is truly different from the era of pre-crisis sub-prime. Two data points in particular drive this point home: The average credit score of our portfolio of loans is over 670 and we haven’t had any defaults in our non-prime program.
The mortgage industry needs non-prime. There are just too many Americans who fall outside of qualified mortgage (QM) lending standards. Non-prime and non-agency loans are the key to bringing much-needed liquidity back to the U.S. mortgage market.
Tom Hutchens is senior vice president of sales and marketing at Angel Oak Mortgage Solutions, an Atlanta-based wholesale lender currently licensed in 24 states. Tom has been in the real estate lending business for nearly 20 years. He may be reached by phone at (855) 539-4910 or e-mail [email protected].
This article originally appeared in the December 2015 print edition of National Mortgage Professional Magazine.
