TheMReport — News and strategies for the evolving mortgage marketplace.
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30 | M R EP O RT FEATURE up even higher for those under 35). 6 Although self-employment took a hit during the pandemic, those numbers have largely recov- ered, and are increasing. In fact, analysis of current trends from QuickBooks projects a record- high of 5.6 million new business starts this year. 7 Add on top of that the number of people in the United States engaged with the "gig" economy (which includes everything from long-term con- tract work to smaller "gigs" like Uber, Instacart, and others), and you have a significant portion of the population that doesn't have traditional W-2s to demonstrate creditworthiness. Another significant segment of the market is investors—particu- larly first-time investors who may not have the business or credit history to qualify for a more conventional product. So, what does a non-QM borrower look like? Although there's no one easy profile to showcase, they will frequently need a different way to calculate their income for quali- fication, like bank statements or other alternative documentation. But for many lenders, non-QM borrowers have very good credit profiles: average FICO scores from 720 to 740 and average loan-to-val- ue ratios (LTVs) at 70% or lower. But how do mortgage originators find a lender to meet the needs of these creditworthy borrowers? Finding the Right Lender S tep one for meeting the needs of any non-QM borrower is simply finding a lender that offers non-QM products; and this, like nearly everything else, took a hit during the pandemic. However, as the market recovers and grows, more and more lenders are step- ping into the space, and origina- tors will need to seek out what differentiates one non-QM lender from another. The first, and perhaps most critical, differentiator is experi- ence. How long has this lender been offering non-QM loans? Do they have a dedicated department for these loans? Finding answers to these questions will require a bit of research, but lenders' web- sites should offer insight into what they can provide for non-QM borrowers. Also consider: How much support and help do they offer originators and consumers with dealing with the demands of these loan applications? For mortgage originators, a lender that has dedicated support staff to helping structure these loans will be critical, especially if the originator is relatively new to the non-QM sphere. Next, consider the underwrit- ing offered. Is it all automated? Manual? Some combination of the two? With non-QM loans, exceptions are frequently the rule, so the ability to offer your clients manual underwriting, as well as the possibility of exceptions to guidelines and overlays, may mean the difference between suc- cessfully closing a loan or leaving your borrower unsatisfied. If the lender offers manual underwrit- ing, dig a little deeper. What kind of expertise do they have in manual underwriting? How long have they offered it? What kind of staff are dedicated to this area? Also consider where the backing is coming from; research how the lender is funded and how deci- sions are made. Is the lender able to make decisions on exceptions or will they have to consult inves- tors or other interested parties? This is particularly important for smaller lenders that may need to run loans past their investors, as this can affect turn times and if the loan will close with excep- tions. Ask: What percentage of their closed loans include excep- tions? Answers to these questions will provide valuable insight into the lender and whether they will suit the needs of your borrower and your business. Next, consider the products the lender offers. Do they have just one non-QM product or a full suite to meet a variety of needs? Do the products change as the market shifts? Are they flexible? As any two non-QM borrowers are rarely the same, it's impor- tant to partner with a lender that offers a full range of prod- ucts—not only to better meet the needs of borrowers, but to make a better partner for originators to go to with the full range of their clientele. Non-QM lenders should offer a variety of products, from purchases to refinances and from primary residences to investment properties. By asking these kinds of ques- tions and researching the lenders available in the non-QM market today, originators will be able to find a lender that meets the needs of their borrowers. As the mortgage market and the employment market continue to shift, originators and lenders must shift to accommodate both. Although conventional lending is still the largest segment of origina- tions, originators should consider adding non-QM borrowers to their business. These borrowers are often objectively creditworthy, but simply require a bit more analysis of their financial situation than simply filling in boxes in an automated system. As more and more entrepreneurial Americans become self-employed or find success in the gig economy, the demand for mortgages to meet their needs will grow. Seeking out and partnering with lenders ex- perienced in the non-QM sphere will mean more closed loans and more satisfied borrowers. GREG AUSTIN is EVP, Mortgage Lending, for Carrington Mortgage Services (CMS). In this role, he is responsible for overseeing all aspects of Carrington's mortgage lending businesses, including retail, wholesale, and correspondent. Austin has more than 30 years' experience in the mortgage banking industry, starting in the business as a loan officer. Accustomed to hard work and determination, Austin's career includes senior leadership positions in both operations oversight and sales leadership. Prior to joining Carrington in February 2018, Austin held a similar position at Impac Mortgage, as well as past sales leadership positions at Lehman Brothers and Credit Suisse. 1. https://www.urban.org/policy-centers/housing-finance-policy-center/projects/housing-credit-availability-index 2. https://files.consumerfinance.gov/f/documents/cfpb_ability-to-repay-qualified-mortgage_assessment-report.pdf 3. https://www.consumerfinance.gov/rules-policy/final-rules/qualified-mortgage-definition-under-truth-lending-act-regulation-z-general-qm-loan-definition/ 4. https://www.mortgagenewsdaily.com/news/02012022-mortgage-originations 5. https://www.bls.gov/news.release/pdf/empsit.pdf 6. https://www.freshbooks.com/press/data-research/usemploymentreport 7. https://quickbooks.intuit.com/r/inspiration/new-business-insights-dec-2021/ As the mortgage market and the employment market continue to shift, originators and lenders must shift to accommodate both.