Denis G. Kelly is vice president of correspondent/national
wholesale for Sprout Mortgage, the nation’s leading non-prime lender with broker/correspondent-friendly platforms
focusing on loans in the following categories: jumbo/super
jumbo “near miss,” no-ratio investment loans, self-employed
borrowers/bank-statement loans, recent credit events/
challenging FICOs, and non-warrantable condos. Reach him
at (888) 943-2833 or firstname.lastname@example.org.
Mortgage Lending’s Golden Hour
New loan programs are coming, but is there a market demand?
By Denis G. Kelly
Through the decades, the mortgage industry has experienced dramatic swings of product availability. After the housing crisis, many products vanished, but we are now entering the golden hour, which photographers describe as
a magical time of the early morning when lighting is
perfect — not too dark and not too bright.
As the secondary market evolves, a plethora of new
products are being introduced. The natural temptation is to offer them all, but more is not always better.
A one-month bank statement program may look
sexy on paper, for example, but if the maximum
loan-to-value (LTV) ratio is too restrictive, you may never
find a borrower who can benefit from it.
To take advantage of this magical mortgage golden
hour, it is necessary to carefully consider these emerging new products to determine if they are right for
your portfolio. Ask yourself the following: Are they
market-demanded products, and do they fit into my
sales and marketing strategy?
Market-demanded products are those that provide a
lift to production, revenues and profits. In other words:
“No money, no product.” Unfortunately, it is inherently
difficult to evaluate new products because, by definition, they have no history from which to gauge marketability and evaluate key decision factors. Instead,
your due-diligence process must rely on old-school
techniques, such as asking for opinions from referral
sources (e.g., Realtors) and trial and error.
This isn’t necessarily pretty or something you would
include in a business plan at a Fortune 500 company,
but there is a degree of unknown when considering
new products. Here is the million-dollar question: Is
the opportunity cost of mistakenly omitting a market-making product greater than the opportunity cost of
offering the product?
Following is some information to help originators
answer that question in relation to four current must-have specialty products:
n One-year income documentation;
n A 12-month bank-statement program (with or
without a profit-and-loss statement);
n High LTV and reasonable debt-service coverage
investment solutions; and
n A no-seasoning refinance product, including
The market for a one-year income-documentation
product is vast. Millennials — among others — plan and
save for future housing investments. It is common for
borrowers in this category to have high credit scores,
significant money to put down and long employment
A self-employed borrower’s sizeable increases in
profits, however, may not demonstrate “stabilized
income” as measured on the previous two years of tax
returns. In fact, tax returns frequently do not reflect
true income, thanks to the Rubix-Cube complexity of
Uncles Sam’s accounting methodologies.
A one-year income-documentation loan allows
credit-qualified borrowers to compress the time for
their housing-acquisition commensurate with their
income. Consequently, it allows mortgage originators
the potential to convert denials into closings.
In the present lending environment, no product menu
is complete without a one-year bank-statement loan
program. Not all bank statement programs are created
equal, however. A program that doesn’t permit the
option of using an expense-ratio deduction based on
a profit-and-loss statement has numerous pitfalls. Why
should a self-employed information-technology consultant be forced to deduct the standard 50 percent
for expenses from business deposits when that consultant has little to no operating expenses?
It is necessary for investor partners to provide in-
come analysis of bank statements for originators. There
are numerous ways that income via bank statements
can be stabilized, and it is not the role or the respon-
sibility of originators to review reams of bank state-
ments to effectively guess at a borrower’s income
when the investor is the one that will make the final
determination of income.
A bank-statement desk that will analyze statements at the beginning of the process during the prequalification stage is a must-have from any investor
that you consider aligning with. Ask about this service
before signing up to sell these products.
LTV and debt service
Residential loans to investors — owners who are not
planning to occupy the residence — are not covered
under the Dodd-Frank Act regulator scheme. This
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