- During the pandemic, demand for mortgages surged.
- So is the number of self-employed people who often struggle to qualify for a mortgage.
- As a result, unconventional mortgages are gaining momentum, while other mortgages are plummeting.
An increasing number of Americans are struggling to land their mortgages, and a group of niche lenders are funding to help.
Sprout Mortgage, Angel Oak, Carrington, and Athas Capital Group are four lenders who promise to help borrowers without W-2. They offer competitive pricing and say they help people on the road to repairing their credit.
Their area of expertise addresses investors, everyday borrowers, and self-employed who have failed to qualify for stringent underwriting standards following the collapse of housing in 2008. After the subprime mortgage crisis, they have been accepted by some, but have not played a major role in US mortgage finance.
Now that the other mortgage industry is shrinking, these lenders have hitherto deal with borrowers who have been kicked out of the market due to low credit scores, heavy debt, or non-salary status. That’s all right. These lenders’ loans differ from traditional mortgages because they are not guaranteed by the US government or financial institutions Fannie Mae and Freddie Mac. These loans have stricter underwriting guidelines and do not meet the definition of “eligible” for the gold standard. Mortgages set by the Consumer Finance Protection Agency. “
The pool of borrowers for these “non-QM” loans can grow and About 8% According to the mortgage issuer HSH, mortgage applications are rejected each year. In another study, the personal finance company Nerd Wallet found Creditor processing loans in 2020 increased by 10% from 2019, but the number of refusals increased by approximately 58,000.
For self-employed people, Pew Research Center last year 16 million Of those workers.
“Since the outbreak of the pandemic, there have been more self-employed people and their needs are not easily met with traditional loans,” said Sambyarak, executive vice president of sprout mortgages.
Sprout Mortgage is a lender run by Michael Strauss, a former chief of American Home Mortgage, one of the many subprime mortgages that went bankrupt in the late 2000s. More regular borrowers are also aware that they don’t fit in a standard mortgage box, Bjelac said.
Therefore, the non-QM market is expanding as the mortgage market increases its focus on underserved workers in these services.By the end of the year, some experts Predict The non-QM market will quadruple to $ 100 billion.
Another non-QM lender, AngelOak Mortgage Solutions, projection Angel Oak finds that non-QM type-fitting borrowers are “very inadequate” today, just as the company found a need and jumped in. Tom Hatchens, Executive Vice President of Angel Oak, talked about the non-QM business nearly a decade ago.
In contrast, traditional lenders Scramble for miniaturization Their business as soaring mortgage rates are restraining their business. The Mortgage Banking Association predicts that total US mortgage composition will probably decline by 40% this year to $ 6.8 trillion, most of which is due to reduced refinancing.
Non-QM is “more artistic”
What plagues the traditional mortgage market is that borrowers are helping non-QM lenders who are less sensitive to interest rate movements, as there are few alternatives. Brokers who have been busy refinancing loans more easily over the past few years suddenly want to help borrowers who are struggling to qualify for a loan, including those who have access to non-QM products. , Brian O’Shaughnessy, co-CEO of Asas Capital Group, said.
When arranging loans for non-QM borrowers or investors, lenders such as Angel Oak and Asas consider a wider range of financial information than lenders selling the composition to Fannie Mae or Freddie Mac. for example, Fannie Mae severely limits the number of real estate loans for investorsHowever, Angel Oak takes a different approach to it.
“If the cash flow of investment property covers their mortgages, taxes and insurance, they
Given the score and perhaps history as a real estate investor, I think it’s a good loan. ”
“It’s actually a non-QM art and a discipline,” said Greg Austin, executive vice president of Carrington Mortgage Services, another non-QM lender associated with the pre-crisis subprime industry. ..
As is often the case with non-QM lenders, Carrington works with self-employed borrowers to analyze bank statements, income statements, or 1099 to determine loan eligibility. Some investors continue their traditional work. W-2 can save them from headaches..
Real estate investor Ryan Chau told insiders that “it’s very difficult to get a self-employed loan.”
Non-QM is a “last resort”
Rashad Tillman, who lives in California, said non-QM loans are ultimately a lifeline and a “last resort.” Since starting to look for a home in early 2020, a 31-year-old 3-year-old father (who will soon be 4 years old) said he has faced disabilities almost everywhere.
First, he said a total of four realtors and four loan officers didn’t want to work with him because of his unique source of income.
“When it comes to self-employed people, they’re like,’Well, it’s taking too long and it’s a lot of work,'” he told insiders.
Tillman’s financial situation is complex. He is a full-time manager of a used car dealership, but he also earns money from his small business. The best mortgage he was qualified under the traditional method is $ 400,000, though he was convinced he could afford more because of the way Tillman constitutes depreciation. was.
“I can’t see a $ 400,000 hut here in California,” he said.
Tillman said he learned about non-QM loans through a Facebook ad promoting a “bank statement loan” that was approved based on deposits reflected in a bank account rather than W-2. He filled out the attached survey, but the lender only looked at 50% of what he had deposited in his business bank account.
He continued his search until he found the New American Funding, which said he offered a non-QM loan that valued 100% of his income.
His journey didn’t stop there. The two homebuilders did not accept non-QM loans. It wasn’t until October, after searching for nearly a decade and giving up, that he found a comfortable homebuilder in Riverside County, California, about 90 minutes from Los Angeles.
He was able to buy a $ 640,000 home with three bedrooms and two bathrooms still under construction. It has his dream garden. Without an alternative mortgage, he said it wouldn’t have been possible.
“I was able to qualify for a more affordable home in a safer place where my wife wanted to live comfortably,” he said.
The downside of non-QM mortgages is that they are sold and packaged in private mortgage-backed securities that do not guarantee payment of bonds issued by Fanny May, Freddie Mac, or Freddie Mac, and interest rates are higher than traditional loans. Is also expensive. Genie May. Tillman still pays about 7 percent, or 2 percentage points more than traditional loans, but interest rates on all mortgages have risen since the beginning of the year.
Rate is only part of the cost of having his own business, Tillman said.
“In any case, the money was going to go somewhere,” he said. “Do I want to throw it at the IRS or do I throw it at me?
At home? “