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Navigating A Changing Mortgage Market

National Mortgage Professional
Aug 16, 2022
After the Great Recession, lending rules changed dramatically, mostly for the good

Shifting product focus to enhance borrower options.

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From the booming marketplace of 2021 to the rising interest rates, inflation, and potential recession worries of today, the mortgage industry continues to evolve.

With today’s uncertain market, Flagstar Bank is putting a priority on Non-QM and other specialty products to help brokers and correspondents better serve borrowers. That’s why Flagstar introduced product innovations such as non-qualified (Non-QM) mortgages, home equity lines of credit, and residential construction loans. Flagstar continues to innovate and grow by putting forward a robust set of products fit for this changing environment.

Meeting borrowers’ unique needs with Non-QM loans

Flagstar is a well-established originator in the agency and government space. While Flagstar has continued to originate the standard prime jumbo loan for many years, it is now adding additional products to meet the needs of borrowers today. Flagstar is focused on expanding its non-agency product menu, including Non-QM. 

Flagstar has a number of execution options that include portfolio, whole loan, or RMBS execution. Industry partners can rely on the strength and best practices of a well-capitalized bank with a full menu of products.

“Our focus on Non-QM is beneficial for borrowers and for our industry partners,” said Eileen Lindblom, senior vice president, director, Non-Agency Lending at Flagstar. “Originators need options for borrowers. In some instances, and for some borrowers, a Non-QM loan could provide a more affordable or convenient option.”

A lack of familiarity with Non-QM loans can breed misconceptions.

“Non-QM is not necessarily a riskier product,” Lindblom noted. “With the exception of a business purpose loan, the Non-QM loans that we originate must meet ability-to-pay requirements, which is a big change since the subprime crisis. Non-QM allows borrowers to qualify using different documentation options and allows borrowers who may have had a credit event to recover.”

Flagstar recently rolled out its first Non-QM product, Flagstar Advantage. Advantage provides an option for borrowers to qualify for loans from $100,000 to $3 million, and it allows for more flexible guidelines.

“If they've had a credit event, foreclosure, or bankruptcy, there are lesser seasoning requirements,” Lindblom said. “Future product enhancements on Flagstar’s road map include 40-year loans, IO options and the option to self-employed borrowers to document income with bank statements.” 

Flagstar is also placing an emphasis on additional specialty products, like loans to doctors that offer a higher LTV and lower down payments, or specialty solutions for borrowers with restricted stock as major components of income. Business purpose loans that will allow investors to qualify on the cash flow of properties they own are also in the pipeline.

Adjustable-rate mortgages (ARMs) are a continued focus in Flagstar’s product set as well. “As interest rates rise, ARMs provide a good option for the first years of the loan before adjusting to a fully indexed rate,” Lindblom said. “Borrowers get the advantage of affordability with an interest rate that is lower in the initial period than our current 30-year offering.”

HELOCs offer flexibility to homeowners 

While today’s rising home prices may not benefit buyers, there’s a silver lining for homeowners — historically high levels of equity.

“A HELOC (home equity line of credit) is the perfect way to tap into available wealth for debt consolidation, tuition payments, or home improvements,” said Gregory Kovtun, director, Home Equity Lending. “As rising home prices make it less affordable to move, many homeowners can now use their equity to update their current home vs. buying.”

A HELOC can be the right product for both new and longtime homeowners. “Borrowers do not need a certain number of years in their home to qualify. If the value is there, we can help them access their equity,” Kovtun said.

When looking for a HELOC partner, it’s crucial for loan originators to partner with a reliable institution.

“Flagstar is strong and recently was named the Best HELOC Lender of 2022 by Credible,” Kovtun said. “We’ll be here for decades to come. From a product perspective, our DTI, FICO bands, and 1–4-unit availability are generous and our pricing is competitive. From an institutional perspective, our partners know and trust us.”

Building vs. buying: construction loans  

With today’s scarcity of inventory and resulting high prices, building or renovating a home is another viable option to present to borrowers.

“Borrowers may not find their ideal home in today’s inventory, plus a competitive marketplace is driving up the cost of buying, which often makes it better to build for your needs than to pay a similar price for an existing home,” said David Agee, director, Residential Construction Lending.

Flagstar’s construction lending division offers an array of products, from one-close construction to long-term rate locks and, coming soon, lot loans. Solutions are also available for borrowers looking to complete renovations rather than build.

In evaluating construction loans, originators should remember that a construction loan can begin a long-term relationship.

“The relationship between the borrower, builder, and lender is crucial for the loan and for the future relationship between the builder and the loan officer,” Agee said. “Originators need a partner that delivers service, experience, and a solid long-term relationship. Flagstar has a long history in construction lending and a team with the experience to be a long-term valuable partner.”

An expert partner in delivering creative solutions

Flagstar is investing in technology, people, and processes to serve a changing marketplace.  With 35 years of experience as a key player in the third-party mortgage origination business and intentions to remain deeply ingrained in that business for many years to come, Flagstar offers a rare combination of an expansive and competitively priced product set, wide-ranging expertise, and superior service. 

“At Flagstar, we take care of clients and get things done,” Lindblom said. “The upcoming merger with NYCB provides additional opportunities, especially to use our balance sheet to originate and hold more product and to expand into new markets.”

Learn more about Flagstar’s diverse offering including products at flagstar.com/why. 

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Published
Aug 16, 2022
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