Options expanding for safer non-prime mortgages
By Jeff Lazerson
What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.
Rate news summary
From Freddie Mac’s weekly survey: The 30-year fixed rate averaged 3.83 percent, unchanged from last week. The 15-year fixed averaged 3.13 percent, also unchanged from last week.
The Mortgage Bankers Association reported loan application volume was unchanged from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $424,100 loan, last year’s rate of 3.42 percent and payment of $1,886 was $97 less than this week’s payment of $1,983.
What I see: Locally, well qualified borrowers can get the following fixed-rate mortgages at zero cost: A 15-year at 3.25 percent, a 30-year at 3.875 percent, a 15-year agency high-balance ($424,100 to $636,150) at 3.375 percent, a 30-year agency high-balance at 4.0 percent, a 15-year jumbo (over $636,150) at 4.0 percent and a 30-year jumbo at 4.25 percent.
What I think: Empathetic and ingenious!
There is no other way to describe a new wave of mortgage underwriting criteria. These new criteria are directed at borrowers who don’t qualify for the traditional Fannie Mae underwriting box as well as those borrowers who choose to avoid the intrusive and condescending lending application interrogation process.
For example: How about a lender allowing you to take title in a blind trust for sake of anonymity and a defense against Equifax type property theft?
Or, what about a bank statement program that allows you to add both your personal and business deposits to calculate income. Typical bank statement programs allow you to average either personal or business deposits, but not both.
Or stated-income loans for a W-2 employee.
Most shocking of all is pricing. One investor actually has a rate under 5 percent whereas most of the loans in this category have rates that run in the 6 percent range.
And I’ve noticed that many of the non-traditional lenders servicing these loans do not report your credit history to the credit bureaus.
Back in the days before the mortgage meltdown and the Great Recession, these non-traditional loans were categorized as a mix of sub-prime loans and Alt-A loans. Today they are simply categorized as non-prime loans, according to Guy Cecala, CEO of Inside Mortgage Finance.
More and more lenders are pushing these programs to increase profits and offset slower mortgage sales volume compared to last year.
The net profit for a lender who sells a conventional loan to Fannie Mae is perhaps three-fourths of a percent of the loan amount. Selling a Federal Housing Administration or Veterans Affairs loan may find a lender enjoying about a 1.25 points per loan.
Assuming a shop does high volume, a non-prime loan fetches about 3 points per loan, said Dan Perl, CEO of Irvine-based non-prime Citadel Servicing Corporation.
Holy profit margin!
Don’t get too worked up about a new race to the bottom just yet.
The olden days saw zero-down loans with a bunch of other nasty features like prepayment penalties and payment shock as soon as the prepayment penalty expired. “Down payment is most important criteria at the end of the day,” said Cecala.
As far as loan volume goes, the subprime peak saw loan volume of just over $1 trillion in 2005 — close to a third of all loans funded.
For the first six months of 2016, this non-prime category funded about $10 billion. The first six months of 2017 shows $13 billion in funding, according to Inside Mortgage Finance. Cecala expects total 2017 loan fundings to be about $1.6 to $1.7 trillion.
Lenders may not get more loosey-goosey with for another reason: The borrowers’ ability to repay federal statute.
This statute says, more or less, if the borrower defaults in the first three years of any mortgage, he or she can drag the lender into court and claim the loan should never have been made. The loan can be completely rescinded if the court agrees the borrower was victimized with an unaffordable loan.
Cecala brings up another great point. Conventional lending may see a rate spread of .25 percent from lender to lender.
“There is no non-prime pricing standardization. You can save 1 to 2 points in interest rate by shopping around,” he said.
Jeff Lazerson - Mortgage Columnist since 2011