Solutions like non-QM loans and reverse mortgages are gaining traction
The mortgage industry is shifting – and according to Sherizan Sonnek (pictured), the driving force behind this change is a growing demand for alternative lending solutions. Traditional methods of qualifying borrowers simply don’t fit the evolving financial landscape.
For borrowers who don’t fit the conventional lending mold, the current system creates significant barriers.
“We’re finding more people on a W2 may not reflect all the income. They may have little reward bonuses, but that cannot be counted if it does not have 24 months’ history. And so, the DTI for these conventional loans – which is government-insured loans – those loans are not qualifying,” Sonnek said.
This is where non-qualified (non-QM) loans step in. Sonnek refers to it as “common sense underwriting.” She stressed that while the ability to repay is crucial, it shouldn’t be the only factor determining eligibility.
“Ability to repay does not necessarily mean your debt-income ratio is going to qualify or disqualify you for a loan,” she said.
For self-employed borrowers, the system can be even more challenging. The strict documentation requirements of traditional lenders leave many viable borrowers without financing options. Sonnek’s approach is to work around the limitations of conventional loans and try to work with the banks.
“If a person were to go to a bank or to myself, I have all of the conforming and the conventional lenders who would do the Fannie Mae, Freddie Mac product; however, they [only] go so far,” she said.
“Go to [the bank] and say, hey, we’re not competing against each other. I want to find a chance for your borrower to stay with you and we can do bank statement loans.”
These alternative solutions consider the broader financial picture.
“Take the deposits, divide it, and get income to see where he’s at and if he’s been paying his mortgage on time. If he’s been paying all his debts on time, if he has a history of good credit credibility, that is a person who knows how to spend,” Sonnek said. “He’s managed his funds, and we want to make people who have been responsible financially help them versus just demonizing them in the industry by these criteria.”
One of the most overlooked areas in alternative lending, according to Sonnek, is reverse mortgages.
“The biggest segment of homeowners today, the largest quantity of equity that’s available in our market today are seniors. Many of them don’t know that they can tap into their equity and retire on the HECM (Home Equity Conversion Mortgage) program and stay in their home without a mortgage payment,” she said. “But they have to continue paying their taxes and insurance, maintain their homes, and they have to occupy the property. It’s such a stronghold in our market and many of them don’t know they can utilize it. Some of them are afraid to touch. They keep the equity like an island that they do nothing with it.”
For non-QM loans, Sonnek believes the misconceptions must be addressed.
“Non-QM loans, bank statements, they think it’s hard money, [but] it’s just an alternative. It may be slightly higher than the qualified mortgage, the QM, but non-QMs are the biggest industry that we have right now,” she said. “When you go to mortgage conventions, we are finding that the non-QM lenders are doing way better. They’re [busier] than the QM lenders, and for that I say hooray,” she said.
Despite the availability of alternative mortgage solutions, Sonnek sees a major hurdle: lack of awareness – and this is where she thinks banks could step in. The key to making these loans more accessible lies in better collaboration between industry professionals.
“Everybody has a bank account, and most people go to their bankers first before they go to anybody else,” she said. “If the bank would say, ‘hey, I have a mortgage broker down the street who can do something for you,’ why not share the information?”
Marketing and outreach efforts are crucial in breaking down these barriers. But she also sees a gap in how information is presented.
“Email blast is all good. Having conventions, having talks, I’ve gone to senior centers and spoken to seniors about reverse mortgages,” she said. “Even ads on the television, I’m noticing. They’re talking about home equity, they’re not saying it’s a reverse mortgage, but they’re alluding to it,” she said.
In her view, the industry must do more to ensure borrowers understand their options.
“People are losing their homes because they don’t realize they have a chance,” she said. “So where can we do that? It’s just continuous marketing. Continuous word of mouth, continuous sharing with people.”
