Only a few organizations can deliver proprietary loan programs
This article was produced in partnership with LoanStream Mortgage.
Tony Cantu, of Mortgage Professional America, sat down with William Fisher, executive vice president of non-QM and jumbo lending at LoanStream Mortgage, and Serene Vernon, president, to discuss the non-QM marketplace.
With the refinancing explosion all but done for now in light of rising interest rates, non-QM loans and the 40-year mortgage have emerged as the next big things in the mortgage financing realm. As a result, those facing downturns in volume would be wise to pivot to those areas, one expert told Mortgage Professional America.
Will Fisher, executive vice president of non-QM and jumbo lending at LoanStream Mortgage, urged mortgage brokers and borrowers to do their homework when seeking a lender. “It comes down to experience,” he said. “We are seeing many prime / agency-focused lenders try to dip their toe in non-QM with similar but limited offerings. But, unfortunately, their underwriting teams usually don’t have the experience, and their loans need to be rescued by a more experienced lender.”
In operation since 2001, LoanStream describes itself as the premier third-party originator and real estate finance lender. According to its corporate literature, its wholesale and correspondent lending division works with quality community-based mortgage brokers, bankers, and originators.
Fisher’s advice comes when many in the industry are pivoting to take advantage of the non-QM space that, by some estimates, will be valued at approximately $200 billion this year. Moreover, the segment is increasingly appealing amid a changing mortgage landscape fueled by rising rates.
“When you’ve been originating non-QM since 2013, ‘14, like us, you have a long history, you have performance data you can look at, and then you have the underwriting experience on the team,” he said, “you get great data that helps direct our current underwriting, new program creation, and guideline expansion.”
Serene Vernon, president, noted, “We continue to be and are a lender that writes their guidelines, has the data to make those decisions, and creates proprietary non-QM programs. Only a few organizations can deliver proprietary loan programs, and LoanStream has been a pioneer in this area since 2013.”
Additionally, mortgage brokers and their clients need to examine how their lender partners react to rapid changes and volatility in the markets. Recent changes in market forces have caused conventional and non-QM rates to increase rapidly. As this occurred, some lenders chose not to honor their pricing and locks for their brokers. These decisions could result in delays, uncertainty if a loan would fund, or if resubmitted, access to qualifying rates that were available for their clients.
By contrast, LoanStream stood by its pricing and honored its brokers’ locks on non-QM programs, setting an example of stability and loyalty for the industry. It took a thoughtful approach and years of experience to manuever in a manner that satisfied borrower, broker and company goals.
“Our mortgage broker partners count on us to do the right thing, every day, on every loan,” said Vernon, “our experience gives us perspective and motivation to provide positive outcomes for both the borrower and the broker. Recently, as we were tested by market conditions, we passed beautifully.”
Fisher suggested that borrowers brace themselves for a sudden abundance of lenders offering non-QM. Exercise caution, he added.
“Many lenders are coming to take advantage of the non-QM lending market this year,” Fisher said. “I think they will have a rough time adjusting their prime process and could damage the segment. Brokers who choose to experiment with a lender new to non-QM should closely monitor the first week. If issues are apparent, get that application resubmitted to a lender that is a pro in non-QM.”
Technology should also figure prominently in finding a lender, Fisher said. “There can be many steps in the operations and underwriting processes with non-QM loans,” he said. “We’ve put automated processes -- in bank statement calculation, asset utilization, and other parts -- that cut the time. As a result, our underwriters do not pour through 24 months of statements -- especially since we can accept up to four accounts from one borrower.”
Without automation, the process toward qualifying borrowers can be further delayed, Fisher said. “That can take an underwriter all day,” he said. “We have specifically orchestrated both technology and process flows to get through income in 15 to 20 minutes. Allowing time for the application, title, appraisal, and the credit report -- other parts of the process that are not automated.”
“The difference is experience. In the non-QM space, you can’t fake it. We have associates that have worked and specialized in this space for years. Our broker clients know when they send us a loan, we can assist in structuring the loan correctly to potentially get it approved and funded”, said Greg Armstrong, chief operating officer.
The reemergence of the 40-year fully amortized loan amid the pandemic has also yielded a new area of opportunity for the future.
“There’s a lot of potential for borrowers and investors with the 40-year fixed term loan,” Fisher said. “It reemerged from Ginnie Mae, assisting borrowers out of their forbearance and opening up the 40-year program. It stretches out the payment and, in turn, makes a home loan more attainable for many borrowers, especially in higher-priced markets. But, more importantly, they’re still going to pay down the principle compared to an interest-only loan.”
The 40-year mortgage may be an excellent choice for investors, he added. “Most investors are looking to cash flow their properties. That’s property investing 101. Instead of an interest only loan, which is a favorite among investors, the 40-year is a great alternative that may be a better option for first-time investors and those looking for more than just cash flow and who want to build equity.
While the 40-year interest only loan has been around since 2017, a borrower financing an owner-occupied or second home would need to qualify off the 30-year amortization; the 40-year fixed term, by contrast, has more potential.”
LoanStream Mortgage is one of a few lenders who can originate a 40-year fully amortized non-QM loan. Another reason it continues to innovate and grow in a market where others often encounter challenges.
