“It’s really no different than the Fannie-Freddie style loans,” said William B. Fisher, senior vice president of loan origination and marketing for Citadel Servicing Corporation
. “The differences are we ease up a little bit more on the credit score or income doc type, but we will require a larger down payment or equity respectively.”
Fisher said that non-prime products are especially valuable to originators now, with rates fluctuating and rising, the easy prime rate qualifying borrowers are no longer looking to refinance, so brokers need to find borrowers who qualify outside the conventional credit box.
“With rates going up, our product lends itself to borrowers who’ve been locked out of borrowing for the last eight years,” he said. “You have three major groups – one being the self-employed because of the alternative income documentation that we allow, and asset-based lending.
“Then you have you borrowers who’ve had a life event,” 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 move their money out of their country of origin, 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 non-prime 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 550-credit score and get a 90% loan. We’ll never do that; it’s not a risk tolerance we’re comfortable with. … You had to work to get that 550-credit score. We’re not going to reward those folks with a 90% loan. We’ll let the governments FHA
programs use taxpayer money to back that. To be clear, none of our loans are backed by taxpayers.”
And brokers – provided they’re diligent about compliance – shouldn’t hesitate to add non-prime 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 – in 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.”
Citadel launches new one-month bank statement program
Bringing non-prime back from the brink
Non-prime 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 non-prime market is much different than the “wild west” of the pre-2008 subprime space.