At Angel Oak, he said, decisions are made by people, not by computer programs. “The majority of conventional, agency and government guidelines are really rules. If you are writing computer programs to determine who qualifies for a loan you have to have rules, you have to program it to get a yes or a no. You can’t get a maybe.
“At Angel Oak, we have guidelines. Our rule is that we are going to make good loans and we use people to make decisions between what is a good or a bad loan. Our only rule is that we want to underwrite good loans,” Hutchens said.
He said he and his team talk about what kinds of loans and what kinds of borrowers make sense every day. “We have those conversations every single day, where with agency or government loans, common sense is out the door. If a borrower doesn’t fit the bucket or check the box for that question, they are out.
“That is not how we do loans. We make exceptions to our guidelines every day if we think it is a good loan. The good news is we have been at this over two years and we have had two defaults in all our production, so I think we are doing a pretty darn good job of making decisions.”
He said that with more than 2000 loans written, he can live with 2 defaults. “I’ll take it for sure,” he said.
Asked how he thinks Angel Oak’s default rate compares with the rate on conventional loans, he laughed. “There is no way the default rate could be better on conventional loans. How could it be?”
He said thorough documentation is the key to safely underwriting nonprime loans. “We look at everything and we take a very disciplined approach to nonprime,” he said
Successful nonprime lending is all about common sense underwriting according to Tom Hutchens, senior vice president of sales and marketing at Angel Oak Mortgage Solutions.