Marketing the non-QM loan

by Kimberly Greene05 Jun 2018

When it comes to getting a non-prime loan, borrowers are just as wary as some originators. It’s understandable that people don’t want to dip their toes into the water that once became a tidal wave and took down the lending industry (and left few other industries unscathed). So how can you target the ideal non-prime borrowers and get the right message out there?

Why rebrand, of course. Sub-prime is out; non-prime and near-prime are in.

“We should probably never use the phrase sub-prime again, as long as we live. Because it became symbolic of every excess, everything that we did wrong as an industry and, frankly, as consumers buying homes back in the housing boom and bust cycle, and so it is a stigma we need to overcome,” said Rick Sharga, executive vice president of Carrington Mortgage Holdings, LLC. on a WebCast hosted by Originators Connect.

The good news is that you’re probably already reaching these borrowers to some extent. Sharga says that a lot of the non-prime/non-QM/near-prime borrowers share characteristics with first-time borrowers, plenty of whom originators are already targeting with specialized marketing. Still, he said, there are other categories of borrowers who have been left out, such as growing Hispanic and Asian communities.

“If you just look at a bell curve of borrowers, there’s going to be a certain percentage that are super prime and a certain percentage that don’t quite make prime, and you need to be positioning yourself as a resource to be able to take care of all those needs.”

Originators need to spread the word about all of the things that make the non-QM loans of today different from the sub-prime loans of yesterday.

  1. Underwriting standards
    The originators who were in the game a decade ago saw the shady practices that led to the downfall: loans that were pushed through even though they had, in some cases, missing documentation and off-the-charts LTVs. These days, originators do a much better job when it comes to getting an entire picture of the borrower – and properly assessing the motivation and willingness to repay the loan, in addition to their ability to do so.

  2. Servicing
    Today, reputable mortgage companies pay much more attention to borrowers even after their loans have closed. Lenders who service non-QM loans are subject to risk retention requirements within a securitization, namely that they hold onto at least 5% of the security for at least five years. This results in much more of an incentive to help borrowers manage their asset. “We’ve really built a pretty good practice around the notion of working with customers who had non-performing loans and getting them to perform, and developed an expertise over the years the hard way of learning how to work with borrowers and keep them in a place where they need to be,” Sharga said.

  3. Education
    Let’s be honest – the blame game doesn’t rest solely on the shoulders of those in the mortgage industry. Borrowers were getting in way over their heads, not understanding the differences of one mortgage over another (and originators didn’t explain the fine print, either). There’s a lot more education available for borrowers today, and more tools exist for originators to walk their clients through their mortgage options, as well as what will happen if things go sideways.

In some respects, the change begins with originators.

“We encourage originators not to think of non QM as simply a fall-out product only, where you have a borrower and you can’t fit them into the Fannie Mae loan, and so then you start thinking about non-QM, said Tom Hutchens, senior vice president of sales and marketing at Angel Oak Mortgage Solutions. “You might get some non-QM loans through that strategy, but we believe this is such an underserved market that you really should aggressively market to them. Find them and uncover them . . . It’s such a huge population that post-crisis has been completely ignored.”

Angel Oak provides tools and marketing assistance such as personalized videos so you can market directly to the consumer as well as your referral base. Realtors, for example, would be interested in hearing about these non-QM loans because the product can increase business for them as well. There’s been a lot of awareness about tightened credit standards for mortgages, so realtors have become that first filter, discouraging borrowers from wasting time looking at homes because they won’t be approved for a loan anyway. It’s the job of originators to change the conversation.

“Certainly if you have a deal fall out, you look to non-QM and see if non-QM can help you, but I believe every originator . . . should look at it different and proactively seek out these borrowers because the risk is missing on the business,” said Hutchens.

There are a lot of people out there who don’t think they’re a good candidate for a mortgage because they have a lower-than-average credit score in today’s “difficult” lending environment, and that’s not true. There’s a difference between a borrower who has a low score because of circumstance versus someone who has a low score because they don’t make their payments.

“What we need to remember is that for decades, borrowers with FICO scores of 660 and 680 and 690 were the bread and butter of the industry and loans to those people that were responsibly underwritten performed extraordinarily well. And those are the folks who have been blocked out,” Sharga said. “It really does come down to doing a thorough analysis of the borrower. You don’t stop with the FICO score, you start with the FICO score.”

“Nobody wants to go back to the crisis period that we all were involved in,” Hutchens said.

 

Related stories:
Keeping Tabs on Unqualified Customers Can Boost Your Business
Q&A with Leader at Carrington

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