Many originators wrongly assume that marketing non-QM loans requires them to focus on people with previous financial problems. But tight post-recession lending rules can also make it difficult for high net worth individuals to obtain conventional loans. Yet, these are exactly the type of borrowers that should be coveted by every loan officer.
The inability to document income is one of many criteria that disqualifies potential homebuyers from obtaining agency loans. That eliminates millions of investors, retirees, small business owners and others from obtaining loans underwritten by major financial institutions. These non-QM prospects may have spotless credit histories, plenty of cash, and verifiable assets that far exceed the value of the properties they want to buy. Yet, agency lenders just cannot qualify them based on QM rules.
Innovative non-QM lenders are now offering products—sometimes known as “asset qualifier” loans—designed for people who have excellent credit histories, as well as significant cash, stock or other vested interests. These loans are needed by affluent consumers who do not have verifiable income as required by agency lending rules. Under these programs, ability to repay is based on borrowers’ liquid assets, not income.
A few months ago, Janice was amazed when her personal banker told her that his company, one of America’s largest financial institutions, could not underwrite the loan for her new home. She had built a vastly successful business that she recently sold. She had more than $4 million in savings and equities, much of it deposited at the very bank that denied her loan request. Janice had started a new business, but the Consumer Financial Protection Bureau’s (CFPB) final “Ability-to-Repay and Qualified Mortgage Rule” of 2014 requires a longer self-employment history than she could demonstrate. Janice was stymied and frustrated.
Fortunately, her real estate agent had attended a webinar on non-QM loans and knew that an asset qualifier loan was the solution. She met with a loan officer who specializes in helping wealthy people like Janice qualify for a mortgage. After determining that she had the equities necessary to be approved under an asset qualifier program, Janice was able to move into the house of her dreams.
The future of mortgage banking is likely to favor originators who understand the ramifications of recent rules and can find solutions for consumers, like Janice, who are exceptions to them. The number of creditworthy homebuyers who need non-QM loans is significant and their stories are diverse. The most successful loan officers will be those who seek them out and serve them.
Tom Hutchens is Senior Vice President of Sales and Marketing at Angel Oak Mortgage Solutions, an Atlanta-based wholesale and correspondent lender leading the non-QM space for four years and licensed in more than 35 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 October 2017 print edition of National Mortgage Professional Magazine.