Identify your borrowers who could benefit from a non-QM loan
The non-QM space is growing, but many originators are still slow to catch on.
Will Fisher, senior vice president of sales and marketing at Citadel Servicing Corporation, said that there are plenty of companies who don’t understand how non-QM fits into their marketing strategy.
“The truth of the matter is, you already have the borrower. It’s a borrower that’s, say, self-employed and can’t give tax returns because they write off too much, they take advantage of the tax code. And so we offer a loan for that,” he said.
Fisher said that even when big branch operations have signed up with Citadel—a leader in non-QM/non-prime wholesale and correspondent lending products—their loan officers don’t always know what non-QM lending is. But once originators discover the kinds of loans that can be completed with a non-QM product, it’s as if a lightbulb goes on over their head.
“Some folks get it really easily, and find five files right away that fit our programs and are like, ‘wow, that was easier than we thought,’ and then you have some folks that need a little bit more help understanding exactly how it works,” Fisher said.
The key is the account executive. As opposed to using a desktop underwriter or loan prospector-type program as is prevalent with conventional loans, the account executive acts as the “engine.” They know loans inside and out, and train originators on all aspects of the product, including how to read the bank statement, how to do the pricing, and how to package up the loan so it’ll move smoothly through the system. Instead of going into DU and LP, originators contact their AE.
“It’s actually better because then we can do stuff that’s maybe not so cookie-cutter, that might require an exception. If there's is a really low LTV and we want the loan, we’re going to find a way to make it work. We have more gray area that only an account executive [can do]; software can’t figure out.”
The fact of the matter is, non-prime is primed (pun intended) for even more growth. A rising rate environment means that people aren’t going to refinance anymore, and Fisher anticipates a rise in second mortgages. Originators are going to need to learn non-prime, learn how to adjust their marketing, and maybe even think about getting into small balance commercial lending and the multi-unit space. Financing other property types and learning what you don’t know is often the biggest hurdle.
Even referral partners, who don’t deal with lenders directly, can benefit from knowing that a borrower without qualifying tax returns can still get an above-board loan. Rather than turning away the business, they can take the borrowers who can qualify for non-QM products to their mortgage broker, who will do the rest.
Citadel is on a big push to educate originators and referral partners who are still afraid of the non-prime market and who hesitate to go all in. Even more than a decade after the financial crash, the stigma that surrounds non-prime loans actually belongs to sub-prime loans. The differentiator is the vintage.
“Imagine the vintage like a car or a wine. The sub-prime vintage of loans is to a completely different set of guidelines. You had 100% loan-to-values available, you didn’t have the ability to repay, borrowers didn’t have skin in the game, lenders didn’t hold on to any pieces of the loan, so that’s a sub-prime loan,” Fisher said. “This new segment, all around the rules of Dodd-Frank, ATR, Section 35, Section 43, is completely different, so that’s why we differentiate by calling it non-prime. . . . Anybody who interchanges the name doesn’t really understand what’s going on.”
