Originators remain skeptical when I say that non-QM loans are no less risky than agency loans and feature competitive rates.
It is true. Five years after Angel Oak pioneered home loans for people excluded from the qualified mortgage (QM) marketplace, our delinquency rates are as low or lower than agency lenders. How can that be? These borrowers have credit and income histories that fall outside conventional guidelines.
We succeed by focusing on the story of each person who applies for a loan. Agency lenders must fit square pegs of narrowly defined “safe borrowers” into square holes set by standards from mortgage government-sponsored enterprises (GSE). That system has shut out millions of creditworthy people.
Our underwriters manually examine each applicant’s story. We study why that person or couple is unable to secure an agency loan. Each story is different. Often, the negating credit incident or income circumstance does not impair the borrower’s current ability-to-repay. Thus, we have various loan products to assure that borrowers can secure the best termsConsider this story of a first-time homebuyer who had been self-employed for eight years and was unable to qualify for an agency loan. Our underwriter noted that he had a perfect credit history, documented average monthly deposits of more than $14,000 for two years, always paid car loans on time, and verified monthly rent payments of $1,800 for many years. The $422,100 loan he sought would only increase his housing payment by $700 and the DTI on the mortgage would be less than 30 percent. That is the epitome of a win-win transaction. While this borrower could not qualify for an agency loan, our bank statement loan enabled him to realize the dream of homeownership.
Another applicant was unable to qualify for an agency loan because she had a foreclosure on an investment property, a single vacant lot. After selling her primary residence, she wanted a $612,000 loan to purchase a new home. Despite the foreclosure, our underwriter noted her 718 credit score, perfect payment history on the previous residence, a downpayment of $83,000 and 24 months of reserves. Again, the borrower’s story made perfect sense to the underwriter. The ability-to-repay documentation affirmed a good loan for a deserving borrower.
Before the age of computers, every mortgage lender listened to their borrowers’ stories and personally examined their special financial circumstances. When it comes to non-QM loans, the old-fashioned way is the only way, and it works.
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 [email protected].
This article originally appeared in the March 2018 print edition of National Mortgage Profesisonal Magazine.