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Fallbrook Real Estate
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Fallbrook, Bonsall, Rainbow, De Luz, Temecula Valley & North San Diego County Real Estate
LA Times - October 5, 2014
BY KENNETH R. HARNEY
MORTGAGE UNDERWRITING OFFERS FLEXIBLE TERMS AT A SLIGHTLY HIGHER COST
TO THOSE WHO DON'T CONFORM TO VARIOUS UNDERWRITING MANDATES.
you're thinking about buying a house, you probably know the sobering
realities in the mortgage market. Thanks to strict federal rule changes
in the wake of the housing bust, it can be tough to qualify for a loan.
especially true if you don't quite fit the mold — you don't conform to
all the underwriting mandates on credit, income, debt-to-income ratio
and other criteria. You can handle the payments, but issues in your
application push you outside the box.
But here's some good news: A small but growing number of lenders have
begun offering mortgages with more flexible terms designed for borrowers
like you. Say you have solid credit scores and money in the bank but
because of student loans or uninsured medical bills, your debt-to-income
ratio exceeds the maximum that federal rules generally prescribe.
Or maybe you are self-employed and find it difficult to assemble the
documentation most lenders require on income — even though one glance at
your bank statements would show that you earn enough to qualify.
Perhaps you did a short sale on your underwater home a couple of years
ago, too recently to meet the four-year minimum wait time prescribed by
giant investor Fannie Mae before you are allowed to obtain a new
You are not alone. Some industry estimates on the numbers of "near-miss"
applicants or potential applicants nationwide range well into the
millions. To serve them, a new segment of the mortgage market has begun
taking shape: "non-Qualified Mortgage" or non-QM lending. Interest rates
are higher than the standard market by three quarters of a percentage
point to 1.5 percentage point or more, depending on the lender and the
QM refers to the federal Qualified Mortgage rules that are designed to
foster safe lending. They ban certain loan features such as negative
amortization and interest-only payments; set a 43% ceiling for
debt-to-income ratios; and impose a 3% limit on total loan fees, among
Lenders jumping into the non-QM space emphasize that they have no
interest in funding subprime applicants who lack the ability to repay
their mortgages. Skyline Home Loans of Agoura Hillsis preparing loan
offerings that allow debt ratios of 50% and depart from other QM
standards for applicants who have strong compensating factors such as
substantial down payment and reserves.
Impac Mortgage Corp., a public company in Irvine, already has begun
making loans nationwide — $30 million in the past couple of months — on
what it calls "Alternative QM" mortgages to several categories of
creditworthy borrowers with special needs:
•Near-miss buyers. They almost qualify under standard rules, but not
quite. Say they have solid credit scores and good jobs, but have a
debt-to-income ratio of 49%. They're likely to have difficulty making it
through Fannie Mae's or Freddie Mac's underwriting systems, but Impac
may fund them after taking a hard look at their bank reserves and
•Self-employed professionals and business owners. They generally can't
show IRS W-2 forms and may have irregular income flows, complex tax
situations and periodically high debt levels. Impac allows them to
document their income using 12 months of recent bank statements and to
have debt-to-income ratios as high as 50%.
•Investors with multiple properties. They face significant hurdles when
they apply for mortgages. Investors who own 10 or more rental homes or
commercial properties and seek to refinance and pull money out are
frequently turned down by conventional lenders. Impac evaluates
borrowers' incomes based on the properties' cash flows and has no limit
on total properties owned.
New Penn Financial, based in Plymouth
Meeting, Pa., is another early entrant to the non-QM arena. It recently
began offering its "Home Buyer Power" loans through retail branches and
brokers in 47 states. Brian Simon, chief operating officer, told me the
company's initial target is "prime" credit borrowers who seek high
balance mortgages but have debt loads that put them out of reach for
Bottom line: If you assume you can't qualify for a mortgage because you
depart from federal guidelines in some way, go shopping. The emerging
non-QM mortgage market wants to hear from you.