Why nonprime should be in every broker’s toolbox

by Ryan Smith09 Dec 2016
Nonprime loans are undergoing something of a renaissance right now – and they’re a valuable addition to the loan originator’s toolbox. While the 2008 financial crisis left a lot of people with negative feelings about subprime loans, today’s nonprime market is much different than the “wild west” of the pre-2008 subprime space.

“It’s really no different than the Fannie-Freddie stuff,” said William B. Fisher, senior vice president of loan origination and marketing for Citadel Servicing Corporation. “The only difference is that we ease up a little bit more on the credit score, but we will probably require a bigger down payment.”

Fisher said that nonprime products are especially valuable to originators now, with rates rising and borrowers looking for loans outside the conventional credit box.

“With rates going up, our product lends itself to borrowers who haven’t been talked to in the last eight years,” he said. “You’ve got probably three major groups – one obviously being the self-employed because of the alternative income documentation that we allow, and asset-based lending.

“Then you have your folks who have life events,” he added. “Maybe they got hung up in the first crisis and had a strategic foreclosure or short sale, but they’re better now – they have their income all straightened out. We have a loan product for them. You can have a major credit (hit) inside the last three years – or year, even – and we’ll have a loan program for you.

“Then you have your foreign nationals. People who want to get their money out of China, or folks who want to buy in the US and participate in our housing market. We have a pretty innovative program for them as well.”

Fisher said nonprime loans are also often the best product for the emerging millennial market – young people who may have good jobs and plenty of income, but a short credit history.

And while many may get chills remembering the subprime collapse, Fisher said today’s nonprime lenders have stringent rules in order to make the loans as safe as possible.

“We’re still not as risky as an FHA loan,” he said. “With an FHA loan, you can have a 580 credit score and get a 95% loan. We’ll never do that; it’s not our MO. … You had to work to get that 580 credit score. We’re not going to reward you with a 95% loan that’s backed by taxpayers. As a matter of fact, none of our loans are backed by taxpayers.”

And brokers – provided they’re diligent about compliance – shouldn’t hesitate to add nonprime to their product list, he said.

“The mortgage broker is not the one making the loan. The lender is the one who’s underwriting it, who’s funding it, and – our case – who’s servicing it,” Fisher said. “Just about all liability is on us.
For the mortgage broker, as long as they’re putting out their disclosures correctly, they’re just setting up the loan, and that’s really it.”

Related stories:

Want a competitive edge? Move into non-prime

Non-prime is here to stay


 

COMMENTS

  • by Mike | 12/9/2016 1:14:16 PM

    The current product mix in Non Prime can be easily reached through FHA mortgages and the rates and terms are better. On top of that brokers and most certainly bankers can make more. If Non Prime wants to be competitive they need to start supplying a product at a good price, that offers a true niche, where mortgage companies can make sufficient revenue to compensate for the extra time and hassle. A 95% to 100% cash out refi based upon solid underwriting guidelines would be a good place to start.

  • by Craig | 12/9/2016 2:44:06 PM

    Mike needs to due his homework instead of making assumptions. FHA doesn't allow a 24 month bank statement program for self-employed borrowers or mortgages up to $3m with 2 years out of a foreclosure, BK or short sale. I think I just named some very large niches and it isn't about just making money but solving solutions for the borrower.

Poll

Should CFPB have more supervision over credit agencies?