It’s no secret that lenders are dealing with tighter margins and lower volume this year. But the real question is what are they doing about it? We’ve all heard the expression when the going gets tough, the tough get going. In our industry, now is the time to get tough, and really think about making the right moves to reach a wider audience and remain profitable.
For some lenders, the answer is trying new marketing around the same loan products to create more visibility and interest. But if you’re only changing your marketing approach, the borrowers who did not qualify for these loan programs yesterday are still not likely to qualify tomorrow.
On the other hand, lenders could tap into a new, large market of well-qualified and deserving borrowers and boost margins by learning to originate non-qualified mortgage (non-QM) programs. There are many different non-QM products available for a variety of circumstances—in fact, non-QM loans fulfill more borrower scenarios than most people realize. Here are just a few.
Bank statement loans are one of the most popular types of non-QM products and for good reason. This is a huge market where many have been shut out of home buying. In fact, roughly three out of 10 working people in the U.S. are self-employed. Many would have no problem meeting ability-to-repay (ATR) rules. But because they usually have fluctuating income and a large number of tax write-offs, self-employed borrowers simply don’t meet traditional mortgage guidelines, and therefore have a harder time qualifying for loans.
This is where bank statement loan programs can help. Bank statement loans are based on a borrower’s cash flow and liquid assets. To qualify borrowers, lenders can verify their income from bank statements and review a credit report to determine if a borrower can handle payments and bills.
These are borrowers who live and work in the U.S. They pay taxes, file tax returns, and would make excellent borrowers. But because they are not eligible for Social Security numbers, they do not qualify for traditional mortgage loans. However, they could qualify for Individual Tax Identification Number (ITIN) loans simply by providing copies of their tax returns. The rates are slightly higher on ITIN loans than a traditional mortgage. Still, as taxpaying members of society contributing to the economy, they should be looked at fairly and have finance options available, which is why ITIN loans exist.
Many people in other countries are interested in buying homes. But not all are able to qualify under traditional guidelines. Even if they have a high income, strong liquid assets and ability to make a large down payment, they often cannot get financing because of low credit scores—or because they have no credit score at all. These borrowers can still be helped by non-QM programs that factor in international credit reports and letters from creditors.
Real Estate Investors
Millions of people invest in real estate, either to fix and flip homes or rent out to generate income. But many would-be investors can have a hard time finding quick financing to make their home purchases. Lenders who are able to offer no-income loans are a great fit for these borrowers. Because they can use future income to repay the mortgage, such borrowers are exempt from the ability-to-repay rule.
With many non-QM products available for each of these scenarios, the potential for growth in this market is enormous. The challenge is that non-QM loans are entirely different than traditional loan programs. They take real expertise to originate and underwrite correctly.
The good news is that non-QM loans can be quite easy with the right wholesale partner, one with a strong track record of success with non-QM loans and the ability to guide originators through the process. Such partners can greatly reduce the amount of time and effort originators typically spend trying to figure out how to underwrite non-QM programs on their own.
The bottom line is that there are millions of deserving borrowers out there who need someone to help them overcome their homeownership barriers. If you’re serious about growing your business, it’s time to give non-QM products a second look.