Optimism Building In Home Lending As New "Smarter" Subprime Loans Are Here.
These are not the liar loans of the 2000's that bent underwriting rules.
Not everyone should need one of these programs, but if they do there is lots of cheer in the home lending and borrowing space to have them here. Many borrowers have been essentially sidelined waiting for a broadening of loan programs to qualify. Many of them have 3 of these 4 important qualifying factors such as great credit, substantial down payments, stable employment and even verifiable income. However those that don't check the box for all 4 will most likely not fit into a standard or conventional mortgage. After the subprime crises of 2007 lenders tightened guidelines so that a borrower would need to have nearly a perfect situation, checking all 4 boxes to qualify for a conventional mortgage. Reluctant to offer any unconventional lending, many banks initially shied away from these products, leaving legions of borrowers and potential homeowners undeserved the last 10 years. However, now that the dust has settled and some banks took on this risk of these borrowers it is very clear, these loans perform very well and borrowers will continue to need them.
This market place for these new "smarter" subprime loans is known as non-Qm which stands for Non Qualified Mortgage, in other words not fitting Dodd Franks Act Qualified Mortgage guidelines which required lenders use an ability to pay provision for what was deemed a Qualified Mortgage. Mortgage companies are underwriting, pricing, marketing and even servicing non-Qm Loans with more joining the party every day. Some non-Qm originators reported their volume tripped the last year alone.
These non-Qm Loan are primarily being used for some level of alternative or limited documentation. These include borrowers who may not qualify using a traditional tax return or pay-stubs based on write offs, losses, bonus or commission that can fluctuate and can be tricky to use on a loan application. Many of these borrowers have large down payments, high credit scores and even verifiable income using Bank Statements or other Assets.
The other large population of non-Qm loans are borrowers with a prior credit even that has disqualified them from a conventional mortgage. However, this credit event can be overlooked based on a large down payment/equity position, and stable documented income. These credit events may include previous late payments, low scores, foreclosures, repossessions and even recent bankruptcy.
The most important thing to know about these non-Qm loans is they perform very well, they are not the subprime liar loans of 2006. Today lenders and borrowers are much smarter and understand risk much differently after the last housing crisis. The blossoming non-Qm market is good news for everyone since the housing market desperately needs a greater diversity of mortgage products. Extending credit to any deserving borrower will make the landscape of the market more dynamic and will allow it to thrive for years to come. That's something mortgage companies and borrowers alike can be happy about.
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