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Agency mortgages have been uncharacteristically difficult to qualify for in recent years. However, real estate agents are starting to realize that there is value in expanding their offerings to borrowers with unique credit situations. It comes at the perfect time, as a refinance volume cliff looms on the horizon.
The mortgage market is evolving and realtors need to evolve with it. If lenders are not offering new products, they are giving up access to a larger pool of potential borrowers that others are already tapping into. Realizing that change is a good thing and adapting to stay current with the latest in mortgage innovation could be the key to survival as rates start to rise.
There is a diverse variety of non-agency products infiltrating the market today and gaining in popularity. Some products are designed for borrowers who experienced a credit event, or even multiple credit events, and whose credit scores suffered as a consequence. Despite rebounding, these borrowers cannot qualify for an agency loan. These loan programs don’t fully focus on credit scores, but look at the credit risk of the borrower today and strongly consider a borrower’s ability-to-repay a new loan.
For self-employed borrowers or those whose tax returns do not reflect one’s true income, another product gives a loan without providing tax returns; rather, borrowers must show several months of bank statements, higher credit scores (up to 660), and 80 percent LTV and up to 50 percent DTI.
Certain types of non-agency loans are available for foreign nationals who often travel to the U.S., have enough funds but do not have a credit score. These loans are available for up to 75 percent LTV and 50 percent DTI, and no U.S. credit score is required. Other potential borrowers may own properties for rental income but wouldn’t qualify for another mortgage. With proof of qualification on property cash flow, up to 70 percent LTV and no DTI restrictions, this type of borrower can receive a non-agency loan.
We’re only going to see more diverse offerings permeate the market as borrower needs and industry regulations change. Expanding one’s product base could turn out to be crucial to success. Lenders will need to keep an ear to the ground and be cognizant of product offerings across the industry if they want to remain relevant and competitive.
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 Info@AngelOakMS.com.
This article originally appeared in the June 2016 print edition of National Mortgage Professional Magazine.