Finally, make sure all of the documents the lender
requires for submission are actually necessary and
not just “feel good” documents. These are documents
that make the lender feel good but don’t have any real
effect on the credit decision. Take preliminary title,
for example. Why would a lender require preliminary
title for a credit-qualification approval?
Future growth and top-notch AEs
Mortgage bankers and originators are in different
stages of the NP evolution. Some bankers only originate loans they are banking, while some originators
only broker loans through a wholesale lender. Most
are a hybrid of the two.
If you only originate loans that you can bank, then
an NP lender without a correspondent channel will
not work. If you select a correspondent relationship
from the onset, verify that the lender will accept
conditions — especially questionable conditions —
before the loan is funded.
This may be a requirement of your warehouse
lender, but it is also a best practice. There isn’t much
room for error, and you need to partner with a lender
that you can rely on to purchase the loan.
Most nonprime originators are at the stage where
they would prefer to broker loans, but this may change
as the market continues to understand and accept NP.
If you work with a lender that offers both a wholesale and correspondent channel, it will be a relatively
seamless transition when you are ready to take the
next step, because you are already familiar with the
company, products and processes.
Working with a lender that offers both wholesale
and correspondent also means you can work with the
same AE on all of your loans. Over time, this is a person
with whom you will hopefully build a strong relationship — someone you can trust — which brings us to
the final factor when choosing an NP lender.
The AE assigned to be your representative can literally make or break a lender — especially an NP lender.
These loans and processes cannot be nicely tucked
into a manual. It is rare when a loan closes in the same
structure as its initial consideration. NP lending is a
process with many moving parts and, as such, you
need a maestro to conduct your lending orchestra.
n n n
By taking the time to select the best NP lender to fit
the needs of your market, you will be able to honestly
assure Realtors that if you can’t do a loan, there is no
reason to call another originator because it can’t be
done. There is no room for second place in this business, and you now have the means to select the best
lender to help you tame the coming storm of non-prime business. n
With bank-statement programs, for example, determine if the lender evaluates the statements for true
income. If they use a standard, consistent deduction
for expenses from business deposits, the results may
not reflect true income. A baker has a different cost
structure than an electrician or an accountant. Applying a single deduction may lead to dubious grounds
for passing the “ability-to-repay” (ATR) rule.
Simply because a lender’s guidelines dictate a
straight-percentage deduction for business expenses
does not mean that your borrower actually meets the
ATR rule. If you broker a loan to this lender, you will
incur some of the ATR compliance risk.
Another area of concern is the disclosure process.
Many NP lenders claim to own the disclosure process,
but typically this is only after a full file is submitted.
If you make disclosures as the lender knowing the
loan will go to an NP lender, you open yourself up to
potential violations of unfair and deceptive acts and
practices (UDAP) statutes. Working with an NP lender
that has a compliant end-to-end disclosure process
alleviates this concern.
Finally, with the constant threat of data theft and
breaches, it is striking how lax some lenders are about
information safety. If a lender asks you to e-mail
non-encrypted personal information or documents,
that is not the lender for you.
Pricing and lender compensation
Borrowers whose only options are NP products are
not as rate sensitive as prime borrowers; however, once
NP is accessible to all originators, the sensitivity will
increase. As a rule of thumb, your primary NP lender
should be within 50 basis points of “market rate.” If the
difference is more than 50 basis points, the gap is too
great to make up with compensating factors such as
fantastic service or expansive product selection.
Additionally, if a lender is not willing to compensate
you for originating a loan, then move on. This goes
beyond lender paid compensation, or LPC. It is a matter
of respecting what you as a professional loan originator
add to the value chain.
The second coming of the nonprime market is still
in its relative infancy, so the LPC-equivalent to prime
levels doesn’t exist and isn’t supported by the market.
If a lender cannot discover within its model a way to
offer some LPC, however, there are likely other underlying issues that will conflict with your needs and
goals. Walk away from such lenders.
Exemplary process and service
Does the lender do things the way you would? It is
better to have no product than to have a product with
bad service. Every time you set expectations with a
borrower or referral source, you put your reputation
— and your future earnings — on the line.
Does the lender create an overall process environment that respects this critically important consideration? Ask the following questions to find out:
Are your underwriting turn times under three days?
How long does it take to clear conditions? What is
required for credit approval? Do you underwrite for
TBD (to be determined) properties? Do your account
executives (AEs) have access to underwriters for
clarifications or questions? Is there a scenario desk?
Can bank statements be evaluated prior to full loan
submission? Do you use our credit report or re-pull
Most of these questions focus on whether or not you
have a bankable loan, so you can properly set expectations with your borrower and avoid going through
a resource-heavy submission process before the validity of the loan can be determined. If the lender does
not provide all requisite service tools, then you, your
borrower and the Realtor may go through the entire
exhausting process only to discover that the lender
doesn’t like the loan.
This decision must be reached much earlier in the
process so all parties can avoid this needless runaround
and aggravation. Ultimately such inferior business
structures increase fallout and jeopardize invaluable
If a lender doesn’t use your credit report, for example, it is likely that 10 percent of your submissions will
turn into denials. Using your credit report is an absolute necessity when selecting your primary NP lender.
A few negative service policies and deliverables can
drop your funding ratio from 70 percent to as low as
25 percent, which will negatively affect your business.
<< Nonprime continued from Page 70 “You need to partner with a lender that
you can rely on to purchase the loan.”
Factors to consider when
evaluating nonprime lenders
n Are product offerings comprehensive?
n Are compliance and information-safety
n Is loan pricing in line with other NP lenders?
n Does the lender offer lender-paid compensation?
n Are their processes and customer service
n Can you offer correspondent services or grow
into a correspondent?
n Are the account executives top-notch?