On the way to achieving fully automated non-QM?

Company EVP reckons so, while discussing 'ground-breaking tool'

On the way to achieving fully automated non-QM?

Sprout Mortgage has been making huge strides in its bid to transform the brand into a highly automated digital experience, particularly when it comes to enhancing customers’ experience with non-QM loans.

Last October, the company launched iAnalyze. Described by Sprout as the first non-QM bank statement analyzer tool of its kind, it was designed to eliminate time-consuming income analysis required for bank statement-based loans - a major aspect of the non-QM lending process.

iAnalyze was but the latest in a long line of platforms aimed at streamlining the loan process for both mortgage brokers and correspondent lenders, while showcasing the company’s impressive array of non-QM programs.

Read more: Sprout Mortgage launches jumbo loan designed for premium homes

However, the first of Sprout’s ever-growing suite of easy-to-use tech solutions was iQualifi, hailed as a ground-breaking tool to help mortgage brokers and bankers easily determine the most appropriate loan program.

Joseph W. Bartolotta (pictured), Sprout Mortgage’s executive vice president, spoke to MPA this week to discuss some key questions about non-QM, its prospects for growth this year, and Sprout’s use of tech.

Read more: Non-QM and automation – a marriage made by tech

1. Tell us more about Sprout’s program and pricing engine, iQualifi. In what way is it a ground-breaking tool for brokers in the non-QM space?

Sprout has developed a large number of loan programs to meet the wide range of home financing needs that our clients bring to us. The result is a robust set of lending solutions that cover literally thousands of scenario permutations. iQualifi automates a search among all those possible loan solutions to identify the right one for each customer and each situation, and to quickly price it using information that is available to the loan officer early in the sales discussion. All this is done without having to consult program matrices, rates, or having to calculate loan-level pricing adjustments.

2. Sprout Mortgage is a leading non-QM residential lender and appears to be spearheading the use of tech in the space. Are there any limitations when it comes to using tech with non-QM lending?

We’re focused on delivering lending solutions that fulfill our customers’ desired experience and that are prudent, sustainable solutions in the investor community. Technology can speed our delivery and make for a more efficient process, but we don’t want it to diminish the human element of the trust factor, which is critical to our customers. As for the investor community, limitations from the investors who purchase non-QM loans are important to consider. But they’re more like prudent skepticism than true limitations. Everyone in the value chain is motivated to make non-QM originations as efficient as possible. So just as with any kind of new process, we have to be able to demonstrate that the change has not impacted our underwriting criteria, or exposed a new kind of risk, or weakened our control mechanisms in any way.

3. Can the process ever be fully automated, given that a borrower’s employment record tends to be more complex (mainly because non-QM borrowers are usually self-employed)?

That is an achievable goal, and we’re well on our way to achieving it. We have already introduced a tool that uses an AI engine to analyze bank statements and produce an equivalent income estimate. It’s called iAnalyze, and it calculates in an hour or two something that used to take several days. It even optically scans bank statement documents that are uploaded to a secure location we provide. Our clients are now able to provide qualification information back to their borrowers much more quickly, and the streamlined intake mechanism means less work for them overall.

4. We keep hearing that with the growth of the gig economy and the rising number of self-employed people, non-QM is going to take off this year. What are Sprout’s expectations for non-QM in 2022? How much does the company expect to grow by?

That increase in the number of people who call themselves self-employed will indeed fuel continued growth in the non-QM sector. As for Sprout, we’ll also see growth in the real estate investor market, growth in our QM (prime jumbo) originations, and growth in our other production channels as well. We’re well positioned for significant growth from all these market dynamics.

5. What advice would you give originators who wish to get started with non-QM?

Be sure that they align themselves with a lender that has experience in the non-QM sector. Lenders who really understand non-QM programs can make it considerably easier and faster for originators to get up to speed and get business done. Look for a lender that can provide technology that’s similar to what has existed in the QM sector for a long time – that will make it much easier for production staff to become equally proficient at originating QM and non-QM loans. And that’s really where we have to be: originators should be able to quickly and easily put a consumer into the right loan program – and be indifferent as to whether that happens to be a QM or a non-QM program.

6. What’s the typical profile of a Sprout client?

Sprout borrowers look remarkably similar to “regular” mortgage borrowers when it comes to key metrics like LTV and credit score.

7. What are the challenges facing Sprout this year, given that firms are having to deal with higher inflation, margin compression and the much talked about reduction in loan volume?

Our challenges this year will likely come from originators who are ‘discovering’ non-QM programs – now that the re-fi wave is subsiding. With that comes the need for more education and more high-touch interactions from our account executives. That’s why Sprout’s technology enhancements are so vital. They allow us to free up time that was spent on more routine tasks so that our AEs can dedicate more time to helping clients realize the benefits of non-QM programs. While there will likely be a reduction in conventional loan volume, it means that deals which might have been overlooked last year – deals that can readily be served with a non-QM loan – will get a lot more attention this year.