After the Great Recession, lending rules changed dramatically, mostly for the good. But, as many as 15 million Americans–many of them victims of the market collapse almost 10 years ago–continue to be penalized for being caught up in a tsunami they could not avoid.
Fortunately, mortgage industry innovators now offer new products featuring careful underwriting as well as reasonable borrowing terms for individuals who cannot qualify for agency loans. These non-QM loans help people with diverse income and credit histories, while safeguarding against lending to those who are unable to pay.
Yet, many mortgage industry professionals continue to think of non-QM as similar to the high-risk sub-prime loans of the prerecession era. That is because the 2014 “Ability-to-Repay and Qualified Mortgage Rule” issued by the Consumer Financial Protection Bureau (CFPB) redefined “Qualified” and “Non-Qualified” loans as distinct product lines, leaving the latter with a misleading and unfavorable name. However, non-QM lenders have different but no less careful underwriting procedures.
Trevor is an example of a potential borrower who should be a desirable client for most loan officers despite his inability to get an agency loan due to a previous foreclosure. In 2008, he was 30-years-old and on track to become partner at a prominent Tampa law firm. Although he was still paying off student loans, his income was beyond his expectations. Almost everyone he knew was investing in real estate, so he decided to purchase a $500,000 home for no money down on a five-year ARM. The way prices were rising, he planned to either sell it at a profit in two years or refinance. In 2013, he could do neither and suffered a foreclosure. He has been renting ever since.
Even though his career and income continue to rise, Trevor remains ineligible for a “Qualified” loan. Is he a high-risk borrower? Hardly. Trevor is an ideal candidate for a loan like Angel Oak Mortgage’s Portfolio Select program. Based on his documented earnings, debt-to-income ratio (DTI), and other favorable factors revealed in Angel Oak’s manual underwriting process, Trevor can be approved for a loan of up to $3 million, with loan to value of as much as 90 percent at rates starting in the low fives.
Matching Trevor with Angel Oak’s Portfolio Select program is just one example of how savvy loan officers can rely on non-QM mortgage products to enable people to recapture the American dream after experiencing a financial setback.
Tom Hutchens is Senior Vice President of Sales and Marketing at Angel Oak Mortgage Solutions, an Atlanta-based wholesale/correspondent lender licensed in more than 35 states and operating in the non-QM space for over three years. 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 August 2017 print edition of National Mortgage Professional Magazine.
