What’s ATR-in-Full? How to qualify owner-occupied transaction using only liquid assets

Richard: [00:00:03] Hello everyone and welcome to today's webinar with Acra Lending where brokers. We'll be learning all about ATR, also known as assets and the ability to repay loans. I'm Richard Thorn, a US news editor at Mortgage Professional America, and I'll be your host today for what promises to be an exciting look at how brokers can capture more business by learning how to originate ATR loans, a type of non QM product that requires no income or employment. Before we begin in earnest, a few housekeeping notes to run through. If you need any technical support during this webinar, please use the chat box as we have a team on hand to help you with any issues. We would also love to hear your feedback on the poll questions, so be sure to participate when prompted. Last but not least, this webinar recording will be made available to all attendees after the event. So if you have any distractions during the live feed, don't worry as you'll get another opportunity to watch it at the end of the presentation, there will also be a question and answer session, so be sure to type any questions you have into the corresponding Q&A box. Remember, the more feedback we get, the more we know about the issues you're facing with clients. So please engage with us today using the Q&A function. Now back to the subject matter at hand and Acra lending's view that brokers could grow their business and add another arrow in their quiver by learning how to originate loans. This product is designed for borrowers who have liquid assets but no steady income. Stream ATR means no paperwork and no DTI for loan amounts of between $100,010 million available on a range of fixed rate loans, with interest rates in the low to mid sevens. What is particularly attractive from the brokers point of view is the ease with which they can generate these asset based loans. This is all the more important given the current challenges in the housing market, with 14 year high interest rates, spiraling inflation, plummeting refi volume, and with mortgage demand at a 22 year low. With all that said to show us how to capture more business and learn how to master this product, I'm delighted to introduce Ryan Barrus, senior vice president of sales at Acra Lending. Ryan has been at the company for more than eight years, started as area sales manager before becoming vice president of wholesale sales in December 2020. Ryan is so confident that if you could do an agency loan, this loan program is going to be a walk in the park. So without further ado, I'll pass you over to Ryan. 

Ryan: [00:02:39] Richard, thank you very much. It's anybody following the stock market this morning. It's it's funny that we're doing an asset based load on the day that the market is sliding off a little bit. But I'm Ryan Barrus. I'm in Utah. Freeway behind me is is I-15? It's very real, not fake. And I'm really excited to talk about this program because it's so simple. So it's not asset depletion, which we also offer, but it's so, so simple. So please, if you have any questions, any scenarios, throw them in the Q&A box. We'll get to them at the end. And I really love my company after lending that year, nine years, because we continue to come up with new loans. Right. So so mortgage demand is on a 42 year low. I have Tuesday, Thursday calls every week with our CEO and our president talking about the market. Right. This this this pie is getting smaller and smaller. And and how can we get bigger pieces of it? Within the last couple of weeks, we've launched a P&L program, a ten night only program and a written VOA program. The program we're here to talk about today. ATR in full is an oldie and and a goodie. But so so without further ado, I'll jump into it and try to get some interaction going ATR in full stands for ability to repay in full if anyone's curious and I got my first question is this program allowed. For primary residences only if your indicated on your screen, please pop in and answer. You've got a 5050 shot. And I'm going to tell you in about 10 seconds what the correct answer is. Beautiful. Winter. Winter, the answer is true. So who is this program for? So let's just start with the premise, right? If you have and I'll make it simple, it's not always $1,000,000, but if you have $1,000,000, we'll give you a loan for $1,000,000, just that easy. So the people that actually use this program the most are honestly recently divorced borrowers. Right. You have a couple that are married for some amount of time. They get divorced. One of them has to buy out the other of the existing house or they need to buy a new house. And maybe they haven't worked for ten or 20 years. In fact, that was the position that my own mom was in. Parents divorced at 20 or 22. They've been married for 24 years or something like that. My mom got a chunk of money, but she hadn't worked for quite, quite a few years because she was raising four kids so she could use this program. Right. Let's say that she got 500,000 to buy a $500,000 house 20 years ago, which is what she did. It also works for day traders. Now, we've been doing this program for a long, long time. Day traders became much more of a thing as the pandemic hit. Right. Remember, we had a lot of these sort of white collar workers working from home and some of them weren't working at all right. It was a weird, weird time. And during that time and shortly thereafter, we started getting a lot of loans on this program for people that called themselves day traders. Right. And and some people made an incredible amount of money. But if you take day trading over the last year and try to show that to a new type of underwriter, they're going to go no dice. So so day traders use it. Trust fund babies. Right. People that just inherited a lot of a lot of money and anyone else who is asset rich. So maybe that is a, you know, a lottery winner or a somebody that won a settlement that's actually fairly, fairly common. So the borrower does not have to be currently employed. They only need to show us two months of statements. Right. So so let's say they won the lottery today, right? You have them put some of that money in a savings account. And once they have two months of asset statements, they can get a loan with that down to a 600 FICO max LTV is 70 on, 75 on a purchase, 70 on a refi owner occupied only. Now, let me pause on that for a minute. Generally it's owner occupied because we use this sort of as a backstop. But if you had an instance where a borrower owned their primary residence free and clear and they wanted to use this program for a second home, we would entertain that as an exception. But the program is primarily geared towards owner occupied only debt to income ratio. There isn't one. I pop this slide in just because I know that this is presentation will be available after for for people to reference back or you can always call me so Acra will not calculate a DTI for applicants who are using a debt service coverage ratio. Cash flow loans. We love those. Or by proving assets only. Which is which is what which is what we're talking about. Get over here. All right. Key points. This is. Other than, I would say maybe an FHA streamline. It's got to be the easiest occupied loan I've ever been involved in in my 21 years in this in this business. You're going to submit it with a credit report, two months of asset statements, purchase, contract with the purchase and not much else. What the underwriter is going to look at is that your assets were seasoned for 60 days. Right? So if they won the lottery yesterday, they got to wait a little bit. What the underwriter wants to see is, hey, this borrower has the ability to have this amount of money saved and is not is not spending it right. It's not depleting it. So so if we get two months of bank statements and two months ago they had a million and then last month they had 750. And then we see their year to date and now they're down to 500. That's not the right direction. Right. They're going to run out of money in a few months. What we want to see is, hey, you got a million bucks in your savings account or more commonly you have $1,000,000 in your brokerage account. Although after the slide in today's stock market, you don't have a million anymore. You got like nine, nine, 50. So all persons on the bank statements must be on the loan. What that means is if you have a husband, wife, husband or husband or whatever it is and they're both appearing on that asset statement, they both must go on the loan. If we didn't require that, technically you could have the same account being used by both parties for two different two different loans. We don't want to see any withdrawals in the last two months. Now, there's an asterisk down here because there's always exceptions. Right? If there's a withdrawals for earnest money, that's always allowed. If there's a withdrawals for some other reason. Right. And again, we don't want to see them living off the account, but if there is a one time expense, let's say they had a million won in the account and they had a one time expense of buying a car. Right. And they write an LOI saying, hey, I bought a car. I still have more than enough money. It was a one time expense. We probably allow that. We, you and I would talk one off and just go well. By the time they close, that statement will be off anyway. So you worry about it. But limited exceptions are allowed as long as you keep the mindset of the underwriter doesn't want to see this borrower bleeding out this account to to zero. Multiple accounts are in common, actually. So you can use a savings account that's got 100 K in it and a brokerage account that's got 100. Can it add them up? You got 200K to apply towards this primary residence only we spoke about that and then down payment of closing cost can come from separate accounts, including business accounts. So this is really important. On an ATR full loan, you must be using personal bank statements or personal brokerage statements, etc. And let's say just keeping with our million dollar fee and you got $1,000,000 in your brokerage account, right? Acra is going to give you a loan for $1,000,000, but your 25% is coming from some other place. The down payment can come from basically any borrower controlled asset. So business account, a separate joint account from with a borrower that's not on the loan. So important, important distinction. ATR fall versus asset depletion. So this is a common sort of point of confusion. ATR in full is assets instead of income. Asset depletion is assets as income. And I have got a question. Interaction, baby. Chime in. Question is what are the benefits of air travel over asset depletion? And I can tell you there's no debt ratio on ATR in full. Absolutely. So zero debt ratio if you're doing ATR in full loan, whereas an asset depletion loan has a DTI. Right. Both programs that have valid use cases, but on an asset depletion loan that typically looks like something like this. We have a teacher in Portland, Oregon. She makes 60,000 a year, right. Five grand a month, but her debt ratio is 78% or something. It doesn't work. But she also has $500,000 in a fidelity brokerage account. And we can take that brokerage account, divide it over 60 months, add that income into her into her teaching income, come over the debt ratio and it works. That's a perfect loan for a lot of scenarios. Some scenarios that's not great for. Right. You want an air and full loan, meaning there is absolutely no debt ratio. So it doesn't matter how many Bentleys they have finance, how much they're paying in alimony, how much they're paying in child support. None of it matters. They've got the million dollars to cover their loan balance, so no debt ratio exists. And thank you guys so much for chiming in. Almost everyone got that answer correct. And if anyone has any questions further about the distinctions, please pop into the Q&A section and we'll hit we'll hit them at the end. So what to watch out for pledged funds. So a pledge account looks something like this. You get a Merrill Lynch account, right? And the borrower has 2 million bucks in it, but it says pledged somewhere on the top of the statement. What that means is they've already taken a loan against it. And so we cannot use it for our transaction because it's already pledged as collateral to Merrill Lynch in this case or someone else. What's really interesting and amazing is Acra does not pledge that account, and that's really appealing to a lot of borrowers who don't want their account statement pledged, because if it's pledged, depending on who pledged it, there might be restrictions on what they can do within the account. And most of the folks that we see want to have complete control over what happens to that money after they close if they want to sell Tesla and by Bed, Bath and Beyond or whatever the case may be, they have the ability to do that. So we're only looking at the funds up until the day that we fund our transaction. Beyond that, there's no pledge to the account. They can do whatever they want with it. They can liquidate all the funds the next day. Sometimes we get future funds, right, which is I have this contract, I have this guarantee. So let's look at it in the sort of lottery winnings, right? You win the lottery, right? You win a million bucks and you have two choices. You can take a lump sum payment of 500 grand or you can take like 30 annual payments of 100 grand or whatever that is. If they took that option for 100 grand in future payments or any other kind of future guaranteed, right? That money doesn't count. We can only use money they have in their account sitting there for the last 60 days. Joint accounts, trust accounts. We can take them both. Right. As long as the joint account, the other party on that account is on our loan. Happy to do it. It's a personal accounts, fine trust accounts. As long as our borrower is the sole beneficiary of that trust or the sole access of those funds, you're going to go seasoning, man. 60 days. I probably beat that one to death and then withdraws. Ideally, we don't see any withdrawals except for the earnest money coming out of there. If there's another singular expense, give me a call. We'll write up we'll write up a beautiful explanation to the underwriter and get that through for you. So how to price an ATR in full loan? It's super, super easy. So there's a half ad to the full dot pricing. I think in the handout section, in the upper right hand corner of my screen, I have attached a current rate sheet. So historically, Non QM rates. Right. Would change like four or five times a year. That's not been the case this year. You guys may have noticed it's been bumpy. We'll see what happens after today. I'm hoping the tenure doesn't pop too much, but once you have today's rates, which are available on our website, you only log in so you can email me and grab them. All you have to do is go down to the corresponding LTB. Most of the time there are 75 because that's our max and you just add a half, right? So under this hypothetical, a 750 borrower at 75 LTV would be six in the quarter base plus there's a half at for ATR in full. You'd be looking at at 6.75. Which begets some questions sometimes, right? So so so some folks, even loan officers that I've talked to, saying, well, why would these guys that are rich, right? They have enough money to pay for a house. Why would they get out of loan. Right. And pay you 7%? Well, per this morning's inflation print, that would still be less than less than inflation. But a lot of times these folks are historically performed well in the stock market and they would rather keep their assets in the stock market and then get a primary residence mortgage with us that results in a tax write off pricing. Ultra, ultra easy. If anyone has a question, let me know. We go down to a 600 minimum FICO. I would say it's less common to have a 600 FICO borrower that that has enough assets for this program, but it does happen occasionally. So six hundreds of minimum 75 is the max LTV. Sometimes there's some groaning about that. But the fun part about this program is we always know they have the 25% to put on minimum credit debt. So this actually applies to any loan that we do, right? So the bulk of our volume is bank statement loans and DSCR loans. But I had looked into the prior webinars and those have been discussed in depth. So I'm covering this, this ATR loan, full loan program is its niche, right? It's a one in 100 ton of loan. But in this market, man, you need every option possible. So minimum credit, credit depth, we need three trade lines graded for 24 months or more. If the LTVs over 65, we don't care if they're still open or they're still active. So just anywhere on credit, three open, 24 months or more, first time homebuyers. Are they allowed? Maybe. So the reason I pulled this up is we'll do a first time homebuyer on this whole program as long as they have a documented rental history. So if they do good to go, if they don't, we cap them. So if you're a first time homebuyer and also you have no documented rent history and we can't see that you've ever paid them mortgage or rent, they cannot do this. So it's a disqualifier if they lack a rent history. But one point of clarification, we define a first time homebuyer as an applicant that has never owned a home. So if you have a borrower, own a home, 15, 20, 25, 30 years ago, first time homebuyer overlays do not apply. Now, I've got a great question. We lend to ITIN Borrower's ITIN stands for individual tax identification number. And that's a huge growth segment, right? We've seen that move from probably 5% of loan volume traditionally to like 15 to 20 maybe this year. And that's as rates have come up. So there's this huge community in the country of ITIN borrowers, and our definition is an ITIN borrower has an item number from the Social Security office. They're living here, but they're not living here legally, like like a visa borrower or something like that. And we do a lot of ITIN loans fold off, and we do a lot of them on our bank statement program. But the question comes up, especially more recently, is can an ITIN borrower use this ATR in full program? Hit the poll. Let me know what you guys think. The answer is true. Yes, they absolutely can. So any item now, they still give me the credit guidelines, right? And most of the loans we do are purchases, I would say, yeah, 80% plus for purchases. But if you have an item borrower that has 500 grand and we just had one last month, this guy owned a countertop company in Portland, Oregon, and he had something like 1,000,005 in his savings account. And I thought about changing careers to do countertops in Portland, Oregon. We didn't ATR in full loan for him. And and that's it. That's the whole program. You got the money, we'll give you the loan. If you have any questions, please type them into the Q&A chat section and. I would look forward to answering them. Richard, are you still there? 

Richard: [00:19:27] Indeed I am. Well done. Let's let's look at some of the questions that are being thrown at us and perhaps you'd like to answer. First one I've got here is who do you actually see using this program? Are they all wealthy? 

Ryan: [00:19:47] So that's a great question. And that's something that comes up a lot. The answer is no. They're really not all wealthy in a traditional, traditional sense. The most common one is a recently divorced spouse who hasn't been employed and who got a settlement. And a lot of times that's three or four or 500 grand. It depends on your market, right? You need a lot more than 500. In Orange County, California, but 203 hundred in South Carolina or Indiana is is plenty. That's a great question. Typically, they're not super wealthy, although we do get from time to time the the day trader in San Francisco, I remember this guy, he bought like 300 grand in Tesla stock. Like, remember how many years ago? Five years ago. And now it's worth like, I don't know, 5 million or something. So great question. They're not all wealthy. Many of them are just comfortable. 

Richard: [00:20:41] Okay. Checking down the list again, are there any prepayment penalties with this loan program? 

Ryan: [00:20:48] So that's a great question. Never so Acra lending broadly on any of our owner occupied programs, of which this is definitely one of them, can never charge a prepayment penalty on any owner occupied property or any second home. So the only time you'll ever see a prepayment penalty with us is on an investment property. And just one tangential thing off of that. Any investment property that you do with us will come with a prepay like a three year prepaid built in because we get better pricing that we can then pass on to the borrowers if they'll take it. But if you have a circumstance on that where it doesn't make sense to have a prepay, they can buy it down to a two year or one year prepaid or buy it out completely for for a fee. Fantastic. We're killing it. 

Richard: [00:21:36] Right. I'm just having a look to see if any more questions are coming through. If there are. Any more. Okay. Right. What is the reserve requirement? 

Ryan: [00:21:54] That is a fantastic question. There is none. But it's funny because one time one of our underwriters, when our underwriters do approvals, they're drop downs right. And every once in a great while, people make mistakes and click the wrong drop down and it input it input a reserve condition. And when we got to the underwriter and said, by definition these borrowers have enough to pay for the entire property in cash. It might seem redundant to also require them to have reserves, but board you. Excellent question. No, no, no. Reserves are required. 

Richard: [00:22:29] Okay. I'm just checking to see if anybody else is keen on asking a question. Let me let me just just give it a moment to see if anybody else wants to ask any any other queries. Yes. Right. 

Ryan: [00:22:45] Well, please chime in on the Q&A. I've been on the other end of a lot of these presentations, and there sometimes there's a lot of information. And so if if nothing else. Right, plant the seed today of saying this is possible. My phone number is literally 471. Right. It's my cell phone number. You got to remember the 801. Right. But 796 is right. If you have anything like this. Right, that feels like it might be a fib, but you're not sure. Call me, text me. I've done thousands and tens of thousands of loans at this point. Of these kind of loans, I can help you really, really quickly right. Even if on a Saturday morning, if I'm not at the lake or skiing taught me a text, I'll answer back. I'm always here to help. If if we don't have any other questions that you want to come public with, please reach out privately. 

Richard: [00:23:35] Brilliant. Well, thank you. I don't think we have any questions right now. If that's the case, let me just check again. We don't want to be too premature in shutting everything off now. I think we're fairly, fairly okay here. Really? There's nothing nothing else to add except. Thanks, everyone, for joining us and and for asking those questions. And thank you to Ryan for a tremendous talk. We hope we've addressed a lot of your questions today. And remember, you can always check out the additional resources to find out more. So without further ado, on behalf of mortgage, professional America and Acra lending, it's goodbye from me, Richard Torne, and goodbye from Ryan Barrus. Take care and we'll see you next time. Have a great day, everybody. 

Ryan: [00:24:28] Thank you.