Non-prime, after years in the wilderness, is officially back. If you need proof, look no further than the record-breaking month Citadel Servicing Corp. (CSC) saw in February.
“We had a record origination month in February, the shortest month of the year, and currently, in March, we are 19% ahead of where we were last month at this time for originations,” said Will Fisher, senior vice president and national sales and marketing director for CSC.
That’s because non-prime loans are more flexible than many products that may not fit in the traditional QM box.
“While everybody else seems to be down, we’re up – and it’s because the product that we offer allows brokers to go after an underserved part of the population,” Fisher said. “Not just people with credit events, but self-employed and/or jumbo borrowers as well. A lot of people are realizing that this is a very viable product. It’s the same process as originating conventional or government loan, except you don’t have to worry about running or getting a positive DU (desktop underwriting) result.”
And with the yield on 10-year Treasury bonds rising and the Fed now pursuing its rate-hike plans in earnest, non-agency loans seem poised to continue their comeback.
“What I’m seeing is that the 10-year yield rose substantially in February, and it continues to rise in March,” Fisher said. “Rates have gone up, and a lot of companies are refinance-heavy. When you don’t have an interest rate that’s compelling to prime borrowers anymore, you have to start going after the tougher loans. We excel at the tougher loans – that’s why we’re busy.”
The Federal Reserve is expected to hike rates again this year. That means lenders who provide non-agency loans will get busier.
“We do expect more competition in our space, but we think there’s more than enough volume for everyone to do well,” Fisher said. “That’s why we’re expanding our correspondent channel – we want to show originators that there’s another outlet where they can diversify their business away from diminishing government originations.”
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