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Mortgage rates for borrowers with damaged credit are dropping

Subprime loans now have rates starting at 4% or less.

By Jeff Lazerson


What I think: Last week was a full house of fun and fascination for me at the National Association of Mortgage Brokers annual conference in Las Vegas.

As I was walking the trade show floor, I found an investor with jaw-dropping sub-prime rates for borrowers with imperfect credit, starting under 4% for a 30-year fixed — even for jumbo-sized loans.

Typically, those rates start at about 5%.

Think you can’t qualify? How about a very, very aggressive income-qualifying formula that totals up your liquid assets (bank accounts, stocks, retirement funds) and divides that total by 36 months?

Fannie Mae and most lenders tend to require brain-damaging, super conservative rules and dividing formulas (over many more years) before using liquid assets to qualify a borrower for a mortgage.

Let’s talk consumer advocacy. One out-of-the-box lender is offering clients of mortgage brokers free credit score improvement assistance on the fly.

Let’s say you are in escrow on a purchase. The lender’s internal credit guru looks at your credit report and figures out if there are ways to raise your middle FICO score. If so, you act on the guidance and direction, paying balances down on a few bills for example. Borrowers are averaging about 30 fantastic FICO points of improvement, according to the lender.

That could reduce your interest rate as much as a quarter point on a 30-year fixed or reduce your fee by one origination point (one percent of the loan amount). You get that new score and pricing credit prior to loan closing.

Take that to the bank!

Let’s talk mortgage application exposure. Few things are more valuable than your current, verified financial picture when it comes to data mining, analysis and selling. One insurance company is having its sales team contact recently closed borrowers to sell them disability and life insurance using what may best be described as an automated actuary.

Top that Alexa, Siri and Google Assistant!

While at the conference, I also learned use of mortgage brokers is increasing, automation is speeding up the loan process and FHA loans may be about to rise.

Mortgage brokers are historically the lowest-cost mortgage providers. During the mortgage meltdown days, I recall mortgage brokers held about 5% market share. Eric Schuppenhauer, one of the keynote speakers and president of Franklin American Home Mortgage, estimated that the mortgage broker market share will be at 26% by 2020.

In other news, Freddie Mac uses an automated tax return reader and income calculator from a company named LoanBeam. Freddie Mac recently used LoanBeam to calculate income on 16,000 pages of one tax return.

“A record,” said Tom Smith of Freddie Mac.

As for the FHA, a “patch” is set to expire in January 2021, meaning Fannie and Freddie no longer will allow debt-to-income ratios higher than 43%.

Unless the patch gets reinstated, the FHA could insure an additional 750,000 to 1 million loans, said FHA Commissioner Brian Montgomery. That’s on top of 1 million FHA loans last year.

Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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Jeff Lazerson - Mortgage Columnist since 2011