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24 | TH E M R EP O RT FEATURE Also, keep in mind that many of these borrowers have large cash or investment reserves. The stan- dard debt-to-income (DTI) ratio for a borrower today is typically around 36 percent for their mort- gage. Many no-score borrowers, on the other hand, adhere to a higher standard of financial re- sponsibility and seek out mortgag- es that will bring them closer to a DTI of 28 percent. This further reduces the chance of default on the part of the borrower. One of the most significant issues with "no-score" loans concerns nondepository lenders, who must determine how best to package and sell those loans on the secondary market. In general, the GSEs are not keen to purchase "no-score" loans, and thus, there are additional charges that come along with originating them. This is par- ticularly true with out-of-scope or manually underwritten loans, which frequently occur when neither borrower has a credit score. For a 95 percent 30-year conventional mortgage, the charge typically amounts to three and a quarter points of the entire loan itself. Not to mention the GSEs' ability to come back and force lenders to buy back the loan. Some lenders are choosing to pass that cost onto borrowers in the form of additional fees, which is frankly wrong. Why should a borrower pay a fee for acting with financial responsibility and not taking on additional debt or credit that they do not need? Such practices led to the 2008 recession and have stereotyped the financial services industry since. Encouragingly for lenders, "no- score" borrowers are typically able to pay down a loan significantly faster than traditional borrowers, not to mention that they have a desire to as well. "No-score" borrowers are debt averse, which means they may be inclined to go into a 15- or 20-year conventional mortgage, which significantly re- duces fees imposed by the GSEs. Taking the Long View W ith the state of the market today, it's a stark reality that all lenders are looking for ways to cut costs and maintain a steady stream of profit. The FOMC is likely to continue raising interest rates throughout the remainder of the year, which will further stymy refinance activity. While this has been a more-than-optimal market for lenders over the previous seven or eight years, one can expect that business will slow to a more bal- anced pace in the coming years. For most lenders, this means that now is the time to start thinking about what niche they occupy in the market and the type of relationship they have with borrowers. This may include focusing on VA loans for some or jumbo mortgages. Either way, it will be increasingly important to have an area of focus in the com- ing years. More importantly, all lenders will need to ensure they have an honest, consultative rela- tionship with their borrowers— this is where taking the long view of things will have an impact. And, this does not mean look- ing to the next quarter, year, or even the next five years. Instead, the long view is looking 20, 30, or even 40 years down the road from now. Even if a lender origi- nates a borrower's first mortgage, they may never hear back from them on their second or third, much less their fourth or fifth. That's why it's important to estab- lish relationships with first-time borrowers. It's especially impor- tant to create a link that will keep those borrowers returning for more throughout their entire lives. Likewise, there is increasing value in helping borrowers iden- tify loan products that fit their individual long-term financial goals. In the past, tactics such as offering borrowers a lower interest rate was seen as the best way to compete with other lenders, but today, borrowers require much more than just a low rate. Instead, they want to ensure that they are in the right loan for them, and for their offer on a home to be the best possible. Tactics such as preunderwriting borrowers and providing them with digital tools to support their home search serve as a compelling value-add to the borrower-lender relationship, as well as to the lender's relation- ship with realty agents. It's also important to keep in mind that many borrowers are already wary when approaching a lender. According to Ernst & Young's 2016 Global Consumer Banking Survey, only 26 percent of respondents have complete trust that banks will provide genuinely unbiased advice. By demonstrating a commitment to providing borrowers with the best guidance possible and helping them towards fulfilling their long-term financial goals and needs, lenders can set themselves apart from the competition and establish those meaningful rela- tionships. When considering "no-score" borrowers, there's an old saying that comes to mind—"The only people who can get a loan are those who do not need a loan in the first place." These borrow- ers are a prime example of this adage in action, except practically most everyone today must take out a mortgage to buy property. Whether due to market timing, financial security or other reasons, acquiring the capital to purchase a home typically requires one to go through a lender. Currently, however, these "no- score" borrowers are being mis- characterized as subprime or "low score" when in actuality, they can be some of the most-qualified bor- rowers around. Those with low FICO scores, which are a definite red flag, do not fall within this spectrum. By not working with these types of borrowers (or worse, outright avoiding them), lenders are only hurting themselves and their communities in the long run. Opening up to "no-score" borrowers is a move that not only demonstrates lenders' commitment to supporting borrowers as they move down the path of financial responsibility but one that also improves lenders' overall business by expanding their customer base and referral reach, Not to mention that it is also the ethically right thing to do. TOM GILLEN is SVP of Capital Markets for Churchill Mortgage. He brings more than 20 years' experience as a financial services executive, with expertise in business development, product innovation, and organizational leadership. Churchill Mortgage is a company privately owned by its more than 400 employees. A full-service and financially sound leader in the mortgage industry, the company provides conventional, FHA, VA, and USDA residential mortgages across 45 states. Encouragingly for lenders, "no-score" borrowers are typically able to pay down a loan significantly faster than traditional borrowers, not to mention that they have a desire to as well.