Not all non-prime lenders are created equal

by Ryan Smith08 May 2018

With non-prime making a roaring comeback in the last couple of years, now is the time for originators to add it to their toolbox. But not all non-prime lenders are created equal, according to Tom Hutchens, senior vice president of sales and marketing for Angel Oak Mortgage Solutions.

“We’ve been doing this for a long time now,” Hutchens said. “We’re coming up on five years. We only do non-QM, non-agency – exclusively. We believe that because we’re an exclusive non-QM lender, we’re an expert. That sets us apart – along with the fact that we’re a full, vertically integrated firm. We’re close to the investors. We have affiliated companies securitizing our loans. We’re not reliant on another firm telling us what they want. I think all of those are really the differentiators of Angel Oak. And we have customers who’ve been doing business with us for a number of years, and they keep coming back – so apparently we’re doing something right.”

Hutchens said that despite the growth of non-prime, many originators have yet to add the products to their lineup.

“Some have been slow to adapt to it, primarily because when rates were at all-time lows, most originators had as much business as they could handle,” he said. “Adding new products and new programs just didn’t make sense.”

But now that rates have gone up and refinances have gone down dramatically, he said, adding non-prime just makes sense.

Still, some originators have been skittish about non-prime loans, perhaps remembering the “wild west” environment of the early 2000s. Hutchens said that changing those attitudes was simply a matter of educating originators about the difference between pre-crisis subprime loans and the non-prime products of today.

“We’ve been on an awareness and education mission during these five years,” he said. “We have to let originators know three things. One: We have to have a documented ability to repay. That’s 180 degrees different from 2005, when if you had a pulse, you got a loan. The second major difference is that borrowers have skin in the game. There are no 100%, no-money-down purchase loans anymore. That was a big driver in the pre-crash market – people could buy a house with no money. But our average LTV is under 80%. The third goes to our experience. There’s proof in the pudding now. We don’t hope our borrowers will pay – we know they’ll pay. We can count all of our foreclosures on all the loans we’ve done on our fingers.”

Hutchens said that Angel Oak also differed from old-style subprime lenders in that the company isn’t in the business to make loans and then dump them on a third party – another factor which contributed to the mortgage meltdown.

“We underwrite and approve loans based on retaining those loans,” he said. “The old model, pre-crisis, was based on selling off those loans. Now risk retention is in place. We all have an incentive – from the borrower to the investor – for those loans to perform. Our interests are aligned.”


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