Perhaps the greatest comeback story in the mortgage industry has been the resurgence of non-prime loans. In the wake of the financial crisis, non-prime loans were practically untouchable. But companies like Citadel Servicing Corporation (CSC) rehabilitated the product, and now it’s coming back with a vengeance. MPA recently chatted with Will Fisher, senior vice president of national sales and marketing for CSC, about non-prime’s amazing comeback.
MPA: How do you feel the mortgage space as a whole is doing right now?
Will Fisher: The mortgage space as a whole is doing very well. I think there are indicators in the market, though, that say that the Fed is getting ready to sell off a lot of their mortgage securities. Then you see rates starting to inch up, and Wall Street’s taking note of what’s happening. There are a lot of factors at play that say we’re going to be in an increasing-rate environment – which I think bodes really well for people in the non-prime / non-QM space. I think we’re going to see a sea change here in the next nine to 12 months, and it’s looking pretty good for the non-QM space.
MPA: For a long time, “non-prime” was a bit of a dirty word in the mortgage space. CSC has had a big hand in rehabilitating the product. How has non-prime become a viable option again?
WF: The new rules that came out with Dodd-Frank, specifically in connection to the ability-to-repay, have really shaped what the space has become. Because non-QM loans are not backed by Fannie Mae, Freddie Mac, or FHA, we’re really on our own. So, we make sure that the guidelines are tight. We make sure that we follow them to a T, and we make sure to adhere to ATR where we need to adhere to ATR. … Further, now our borrower has skin in the game – whether it’s 10% down or 30% down – we’re not doing 100% LTV stated loans anymore. That’s something that’s in the past – and something that got a little out-of-hand.
The new version of non-prime has limits – real limits. … We’re comfortable with the risk levels, and the performance on the loans has been very good.
MPA: So what’s the primary difference in non-prime between now and the Wild West days of the early 2000s?
WF: The biggest difference between now and the Wild West days are accountability and skin in the game. Citadel’s products have a max of 90% loan to value. You must put at least 10% down. In most cases it’s 20% to 30% down depending on a consumer’s ability to repay. What this allows is if a borrower has a situation where they can’t pay their mortgage anymore – maybe they had a life event or a job loss – they have an incentive to sell their home and take their equity piece out. And when they’re ready to buy again, they can come back. On top of that, we’re responsible in who we lend to, credit-wise and income-wise. Together with rules like Ability to Repay, it’s very different than what it was – and it’s much healthier. If you look at the performance of these loans throughout the last four-plus years that we’ve been making these loans, you see a very low default rate.