Safe non-QM loans? Yes, it's possible

by Ryan Smith27 Jun 2014
After the advent of the Consumer Financial Protection Bureau’s qualified mortgage rule, many mortgage pros have gotten nervous about the kind of loans they’ll originate. Last year, about 15% of all mortgages would have fallen into the “non-qualified” category. Today, however, many originators are nervous about writing not only non-QM loans, but even qualified loans that fall uncomfortably close to the non-QM line.

But even non-QM loans can be safe – if done the right way. That’s according to attorney Ari Karen, a partner at Offit Kurman and the CEO of Strategic Compliance Partners. SCP has partnered with VidVerify and Litigation Guard to pioneer a process for a “NonQM Verified Loan.”

The process, says Karen, “closes the gaps left by traditional origination, processing and underwriting protocols that often result in claims against lenders. The NonQM Verified Loan process educates the borrower at all phases of the loan process, improving the borrower’s ability to properly choose a loan, and unequivocally ensures that borrowers understand exactly what they are getting and why.”

The NonQM Verified loan, said Karen, depends on an independent assessment “to demonstrate a lender’s good-faith belief that the borrower can repay the loan.” That assessment has three phases. First, SCP independently certifies that the lender has sufficient compliance infrastructure. Then the borrower receives a series of videos created by VidVerify. Those videos present information that will assist the borrower in making educated decisions, and viewership is tracked to make sure the borrower has actually received the information. Finally, Litigation Guard confirms the borrower’s ability to repay through borrower education and the utilization of a residual income analysis.  Litigation Guard also asks a series of questions that will “prevent potential misrepresentations, omissions, steering, and other harms that have become common fodder for lender lawsuits.”

One of the advantages of the process, Karen says, is that it gives a loan several extra pairs of objective eyes.

“You have to have a third-party opinion,” Karen said. “A lot of people look at non-QM like, ‘How can I do it better and make sure I underwrite it perfectly?’ So they go over it again. But you’re attacking the problem the same way twice, and you’re probably going to make the same mistake twice.

“The difference between QM and non-QM is that there have been liabilities laid on non-QM loans,” he added. “If you solve the liability, you’re solving the problem for the loans. You need a legal solution. That’s where you get your good-faith belief.”

The process is also a plus for customers, he said.

“I think you’ll end up with a happier borrower who knows more about the process,” he said. “I think the reason a lot of people are dissatisfied with their lender is they simply don’t understand the challenges. And it doesn’t matter what the lender does to overcome those challenges, he’s not going to get any credit for that. … I think that’s a big problem, and one of the things Litigation Guard cures.”



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