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Today’s mortgage market feels like a high-stakes game for everyone involved, with rising rates and limited home inventory. Both borrowers and lenders are dealing with uncertainty, leaving many potential borrowers without mortgage options. Proposed changes to the Basel III regulatory framework are expected to have banks pulling away from already underserved communities, creating a need for diversified financial products and opening an opportunity to serve new borrowers. Despite these challenges, Flagstar has navigated the market with dexterity and explored alternative solutions by offering non-QM products.
Eileen Lindblom, director of Non-Agency Lending at Flagstar Bank, explains, “Non-agency products address gaps in the market, and Flagstar’s non-QM loan offerings are tailor-made to fill those gaps. The opportunity is massive over the next 12–18 months, and identifying the right customer is key.”
Consumers’ financial needs are ever-evolving. Lindblom says, “Borrowers are getting used to a higher-rate environment, settling down and wanting to buy homes.
So, how do you identify the right borrower for non-agency products?
Identifying the Right Borrower
Winning in this challenging market means expanding your universe of potential borrowers. Not all will qualify for conventional products, so educating yourself about the marketplace and identifying the best prospects for non-agency lending is crucial.
Self-Employed Borrowers
The United States boasts over 33 million privately owned businesses, each potentially representing a borrower with a nontraditional source of income. Lindblom notes, “The number of self-employed borrowers, based on different statistics, can be anywhere from 10 to 30% of the population, and is increasing.” However, self-employed borrowers often face difficulties documenting their income through traditional means.
“With bank statement loans,” Lindblom says, “self-employed borrowers can use 12 months of bank statements instead of tax returns to document their income. It’s a lifeline for entrepreneurs and self-employed individuals seeking homeownership.” In some situations, proceeds from a cash-out re-fi can be used as reserves, 1099s can be used to document income, and assets such as checking, savings and investment accounts can help with income qualifications.
Near-Miss Borrowers
Near-miss borrowers are individuals who come close but still fall short of qualifying for a conventional loan. For example, borrowers who have experienced a foreclosure or bankruptcy, or who have a lower credit score or a high debt-to-income ratio may be the perfect fit for a non-QM loan. These loans are designed to offer a pathway to homeownership for those who do not fit the conventional mold.
Property Investors
A business-purpose loan is an ideal choice for individuals looking to invest in real estate. With this loan, borrowers can qualify based on the income generated by the property they intend to purchase rather than their personal income or assets. Whether for short-term rentals or long-term investments, business-purpose loans simplify the lending process by eliminating the need for extensive income or asset documentation.
“As a loan originator, you can tap into potential candidates for this loan by connecting with local CPAs, chambers of commerce and real-estate agents,” Lindblom says. “Opportunities are there in your own communities. You just have to dig them out.” Business-purpose loans are in the pipeline at Flagstar and slated to be available soon.
Why Flagstar?
Flagstar Bank was an early adopter in the non-agency lending space and quickly secured a top spot. “There are two things that set us apart,” Lindblom says. “First is our product lineup that includes jumbos, non-QM loans and our soon-to-come business-purpose loan. And within our non-QM family, we have a bank-statement product, flexible terms such as 40-year loans and interest-only options. Second is that as a bank, we are a trusted partner and that means strength and stability for our borrowers. Plus, we’ll train originators on how to get the right borrower into the right product.”
Lindblom also points out the benefits Flagstar brings because of its longevity in the business. “When you work with Flagstar, you can be assured we’re not going anywhere. We have been around supporting this business for more than 35 years. We have training courses and an experienced and knowledgeable account-executive team. And then there is the Flagstar origination process, which is second to none.” she says.
Lindblom concludes, “Non-QM products, specifically, are not cookie-cutter. There are more out-of-the box situations with them. We have our matrix, but we do entertain exceptions.”
Learning to play the non-QM game can open up opportunities in a tight and challenging market. By identifying the right borrowers and leveraging Flagstar’s expertise and support, originators can navigate these turbulent times and help more people achieve their homeownership dreams.
To learn more about Flagstar's non-agency offerings, visit flagstar.com/tpoproducts.
