Over the last few decades, the American employment landscape has changed significantly. The traditional idea of working for a single company or corporation for the majority of one’s career has waned and given way to more entrepreneurial models. Therefore, an increasing percentage of Americans now work as sub-contractors, are fully commissioned or self-employed (According to the Bureau of Labor Statistics, It is estimated that 15 million Americans were self-employed in 2015). Of course, these buyers look for every possible write-off to reduce their tax burden each year. By doing so, their AGI (adjusted gross income) may not truly reflect their ability to make mortgage payments.
These aspiring homebuyers are now turning to “non-banks”, such as loanDepot, that can accommodate them in a way that traditional lenders such as banks, credit unions, S&L’s and mortgage brokers cannot. The majority of US home lenders, by volume, now fall into the “nonbank” category. These are “direct lenders” that underwrite their own loans.
An article by Sharon L. Lynch (CNBC Contributor) points out that these borrowers are much more successful simply by knowing where to apply! She quotes Guy Cecala, publisher and chief executive officer of “Inside Mortgage Finance”, who recommends comparing underwriting information from traditional lenders to “non-bank” lenders. “There is nothing wrong with getting a loan from a non-bank,” Cecala said. “Often you’ll get better terms, better service and looser underwriting.” And if the borrower does not fit these flexible guidelines, “non-banks” can put together deals with niche lenders that serve self-employed and high net-worth borrowers.
Ms. Lynch also points out that, in addition to self-employed borrowers, an increasing percentage of households headed by 65- to-74-year-olds carry debt backed by their homes. Obtaining a mortgage on fixed income can be challenging. For example, Fannie Mae’s HomeReady program allows the income of adult children to be considered in an application even if they don’t plan to reside in their parents’ home. In other cases, “non-bank” lenders may count a percentage of assets in qualifying for a loan.
loanDepot’s gamut of options still includes interest-only loans that might be right for people who earn a low base salary and periodic bonuses or that may plan to pay a home off in the near future. Even adjustable-rate mortgages that regularly fluctuate may be best suited to borrowers who can pay off the mortgage if payments rise too high.
Unlike Wells Fargo, BB&T, B of A, Everbank or Chase, loanDepot is not a bank because it doesn’t accept deposits.
It’s no secret that the financial crisis of 2008 (and the government funded bail out) essentially handed the mortgage market back to big banks. The sudden absence of competition meant those institutions didn’t have to offer the best rates, best service or any flexibility in underwriting.
“All they had to do was open their doors in the morning and they got as much business as they wanted,” Cecala said. “Tighter regulation and mortgage-related lawsuits later pushed those banks to focus more on wealthy clients and jumbo mortgages, which carry fewer restrictions than loans sold to Fannie Mae, Freddie Mac or the backed by the Federal Housing Administration (FHA). The shift opened the market to non-banks funded by hedge funds and private equity,” Cecala said. And the landscape has since changed rapidly!
Both banks and non-banks have been sued since the financial crisis, with many cases hinging on allegations that the institutions didn’t screen borrowers closely enough to make sure they could repay loans.
In addition to their agency (FHA, VA, Fannie and Freddie Mac) and portfolio offerings, loanDepot works with Niche lenders, who provide financing to borrowers who don’t fit the traditional mold. These lenders arrange mortgages of up to $3 million and even serve customers with credit scores below 500, whom mainstream lenders generally will shy away from. Some of the options provided allow the borrower to use bank statements as proof of income rather than a W-2 form, which is often key for the self-employed.
This niche is referred to as “aspirational” non-prime loans for people who might not yet qualify for a traditional mortgage but may in a few years. Interest rates typically run half a percentage point to 1 point higher than the prevailing market rate. Down payments of 20 percent to 40 percent may be required.
The largest pool of customers is the self-employed, who usually wind up with either a 30-year, fixed-rate amortizing mortgage or an adjustable-rate loan with a fixed payment for seven years and a payment that fluctuates annually after that.
By Mark Sherman, loanDepot, Jacksonville Beach.
Based on Article by Sharon L. Lynch (CNBC Contributor)
Mark Sherman is a Loan Consultant with loanDepot – https://www.loanDepot.com/msherman and long time business associate of Parker Associates and PTC Computer Solutions. Mark is based in the Jacksonville Beach, Florida office and ready to assist in any of your loan needs.
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