Nonprime vs. subprime

by MPA30 Oct 2017
We spoke to an expert in the burgeoning nonprime lending, who is bullish on the segment and his own company’s future.

“We’re going to be the number 1 non-QM lender in the next two years. I’m not going to measure that by dollars,” David Chapman, national sales director with GreenBox Loans, told Mortgage Professional America. “I’m going to measure that by service and product. I’m going to measure it by the experience you have with me when you come to me as a loan officer.”

Non-prime lending fell out of favour following the financial collapse – and for good reason. But now it seems to be coming back. So why the resurgence now?

“The resurgence of non-prime was inevitable. It’s a perfect storm; there is a lot that has happened in the last decade since the recession that has made the resurgence an essential element of the housing industry. The housing industry is 40% of our economy at a minimum. There is an underserved sector of that community that the GSEs can’t service,” Chapman said.

“The non full-doc borrower, the self-employed, lower credit score, damaged borrower over the last decade has a need and that is what we service.”

Today’s nonprime lending is different from the subprime lending of the “wild west” days of a decade ago, according to Chapman.

“This is a passionate one. It’s completely different. Subprime lending, in its infancy … came from a community of lending that was really an equity-driven opportunity for borrowers. Non-QM is nothing like that; when you start getting into the conversation about qualified mortgages, when I interview somebody, the first thing I do is I ask them if they understand what a qualified mortgage is. Because if you don’t understand what a qualified mortgage is, you’re never going to understand what a non-qualified mortgage is,” he said. “A non-qualified mortgage is a responsibility to the investor to responsibly analyze the ability to repay. Compliance is where non-QM really rests. It’s not equity-driven. I have sales executives that say to me: ‘Just close my loan, it’s a non-QM loan.’ That doesn’t exist (anymore).

“To be able to talk about ATR compliance and say I made this loan and it is justified because is what we have to do. QM loans are protected by a bubble; we’re not.”

Many originators are wary of jumping back into the nonprime sector.

However, Chapman believes now is the time for them to focus more on nonprime.

He argues loan officers who fail to offer nonprime mortgages are restricting themselves.

“There are a lot of originators that are hesitant to get back into the non-QM sector. That’s a lack of understanding. If I’m a grocery store owner and I can sell apples and oranges, why would I only want to sell apples? I wouldn’t,” he said. “The issue becomes: Do I have the skillset to be able to sell the orange. Because the non-QM loan officer that understands it is going to ask completely different questions than the qualified mortgage loan originator. The qualified loan originator is used to sitting at a computer, inputting data, having something sent back that explains what they need to do.

“The non-QM originator has to ask probing questions … find out why, get behind the reason for the … find the solution to what their problem is. Most loan officers today don’t have that skillset. That’s what GreenBox Loans is all about: Try to educate that loan officer to … the questions they need to ask. The investigative questions.”