Executive shares his thoughts on the complexities of underwriting non-QM
Despite the increasing popularity of non-QM loans, some brokers and originators are still hesitant to dip their toes in this growing segment. Brian Hewitt, national sales manager at NextUs Lending, joined MPA in its latest podcast episode to talk about non-QM loans and how overwhelmed loan officers can overcome the challenges of underwriting non-QM.
One factor that turns off loan officers is the idea that non-QM is more complex when calculating a borrower’s credit score and loan eligibility. While that may be true in some cases, Hewitt asserts that there are different ways to underwrite income that can provide an accurate picture of the borrower’s ability to repay the loan.
“We’ve put together a very detailed Excel spreadsheet for when a broker sends bank statements, PNL or even business tax returns. We have a staff on hand that goes through the information, puts it on a spreadsheet, and emails the final underwriting income figures out to the loan officer so that they can go back with confidence and say, ‘OK, if I submit this file with this information, this is what the income figure is going to be’. So really then all they’re dealing with is the borrowers, other debts, and how that works into the debt-to-income ratios,” Hewitt shared.
One type of non-QM borrower is the self-employed customer. Hewitt admits that some files are harder to underwrite, but a lot of times, they’re not.
“They’re looking for financing that works for them,” he said. “I have a CPA client who does loans for a CPA, who does taxes for a tattoo artist. They travel around the United States, and they work in other states. And their tax returns are very complicated because they make income in a number of different states, a regular Fannie Mae underwriter. That is a difficult file to underwrite.
“We can take a look at the bank statements and go, ‘OK, your expense factor is 40%. We’ll add it all up, divide it by 12 and here’s what your income is’. So, they’re a self-employed borrower, and non-QM is a better transaction for them. Often, they actually come in with a much higher income than they do on their tax returns.”
Find out more about non-QM and how you can include it in your arsenal by listening to MPA Talk’s podcast episode: How lenders thrive in a new working environment.
