Millions of borrowers now have credit problems, how can you still serve them?
Between the third and fourth quarters, the US economy experienced the largest decline in real GDP in history, followed by the largest increase in real GDP in history. Amid the chaos and confusion of these months, the sheer magnitude of this economic earthquake has at times been lost. Although estimates vary, this initial drop equates to as much as 40 million jobs lost due to lockdown orders and the rapid spread of COVID-19. Many of those jobs were later clawed back, but sudden and brutal unemployment during a time of national crisis has left millions of Americans with scars on their psyches and blemishes in their credit reports.
Initiators must now work in an economy where credit defaults are much more common than before. The laid-off workers who could have had solid incomes and assets had to resort to credit to get through the tough first months. Borrowers who would have qualified for agency loans before the pandemic, even those who have recovered their income, are excluded by these imperfections. There are different tools that originators have to use to secure loans to these borrowers. The solution may lie in the non-QM.
“It is important to understand the premise of non-quality management as a broader ‘off-branch’ offering, which generally meets the needs of borrowers with credit problems who still have the capacity to repay.” said Tom Hutchens (pictured). , executive vice president of production at Angel Oak Mortgage Solutions. “One of the results of COVID-19 is definitely that more people will have more blemishes, perhaps than ever before. We have gone from a record high unemployment rate to a record high unemployment rate in 60 days. Not everyone is prepared for unemployment so quickly. We believe that non-quality management will be the solution for borrowers directly affected by COVID-19. ”
Hutchens pointed out that non-quality management is suitable for borrowers with credit distress who are back on their feet and earning good income again. These borrowers have the means and the capacity to repay the loans, but circumstances and bad luck in the spring of 2020 hurt their credit reports so that they no longer fit in the agency’s box.
While non-QM bank statement loans are often a solid solution for independent borrowers, Hutchens pointed out the use of other non-QM products for W-2 borrowers who were unemployed for a while but are falling behind. have since largely recovered and who wish, like so many other Americans right now, move further away from a city.
While non-QM is often accompanied by a higher rate at which a borrower may hesitate, Hutchens explained that these products are double the amount of “temporary loans,” a way to overcome the cracks exposed by COVID and put back the debt. borrower, buy new property or withdraw cash from their home. A wise originator can explain how these products can help a borrower improve their overall credit situation.
Hutchens also highlighted the importance of manual underwriting in the non-QM process as a key safety measure for finding the right borrowers. Through manual underwriting, Angel Oak can understand the whole story of a borrower, understanding that life takes unexpected turns and allowing a little human forgiveness into the system.
“We’ve always said no-QM is a common sense loan,” Hutchens said. “It’s not just black and white, we work a lot in gray areas. We make credit decisions not only about whether we believe this borrower has the documented ability to repay, but we believe they will repay us. We take into account items such as reduction in loan-to-value ratio, reserves and reasonable debt to income. We put it all together and then make this credit decision based on the individual borrower’s situation. ”
To attend a non-QM information webinar, you can register here.