Expanding the Credit Box with Non-QM

The MBA is predicting we’ll see lower volume in 2020 as compared to this year. However, the non-QM market is growing at a rapid pace, potentially up to $400 billion next year. And there is good reason for this.

There are many borrowers that do not fit into the conventional mortgage box. There are those who lack credit history, those who are credit challenged, real estate investors and the self-employed.

According to Bureau of Labor statistics from July of this year, about 16 million Americans are self-employed. But the overall impact of self-employed workers is even wider: A Pew Research Center report found that self-employed Americans and the people working for them together accounted for 30% of the nation’s workforce, or 44 million jobs in total in 2014. While statistics vary, it stands to reason that that number could only be higher today.

On top of that, about 36% of U.S. workers are now involved in the gig economy. If the gig economy keeps growing at its current rate, more than 50% of the US workforce will participate in it by 2027, according to an article by smallbizgenious.net.

Verifications are a must

These statistics are proof that the borrowers served by non-QM loans continues to evolve. Creditworthy self-employed borrowers, foreign nationals and investors are ripe for these products, but to successfully cash in on the non-QM opportunity next year, lenders must make sure these borrowers are going to repay.

When you enter the non-QM sector, you’re serving applicants who have more complex financial situations. Oftentimes, you’re working with lower credit scores or higher DTIs. The key is to try to offset challenges with other factors, i.e., if they have a low credit score but high income, etc.

To meet Ability to Repay (ATR) rules, there are four general areas that you are looking to evaluate – income, employment, assets, credit and monthly debt. And, you can do so by ordering additional verifications and reverifying:

  • Credit history: With trended credit data, lenders can obtain access to the monthly payment amounts borrowers have made on revolving credit accounts over a two-year period. It helps determine if a borrower tends to pay off revolving credit lines each month or carry a balance from month-to-month while making minimum or other payments. Trended credit data provides a more comprehensive depiction of a borrower’s approach to credit management.
  • Verification of assets/income: No need to obtain print copies of applicant bank statements anymore. Verify borrowers accounts electronically through AccountChek™ Asset Report (FormFree) and Finicity reports. They provide 3rd-party asset and deposit verifications accepted by the GSEs and minimize the risk of fraud because the data is provided directly from the financial institution. The borrower authorizes account access/borrower-permission access to their financial account information. And you can re-pull reports for up to 60 days (Finicity) or up to 90 days (AccountChek) Credit Plus also offers the option to traditionally verify deposits and assets using bank statements and Fannie Mae form 1006.
  • 4506-Ts: Detect potential mortgage fraud by verifying a borrower’s income with what’s on file with the Internal Revenue Service. Our easy-to-read Tax Verification Reports help prevent fraud and provide the information lenders need to make a proper decision.
  • Verification of Employment: This can be done electronically through the Work Number®, a solution offered through Equifax Workforce Solutions*, and the largest collection of payroll records contributed directly from employers, as well as 4506-Ts and asset validations. Employment can be verified manually as well.
  • Evaluating current debt obligations, alimony and child support: This can be accomplished through Tri-Merge Credit Reports, undisclosed debt verifications and 4506-Ts.
  • Reverifications: Credit Plus even provides standalone reverification processing.

Did you know buyback protection is available for Non-QM loans?

Our verification products come with a reps and warranties coverage to help defend a company against the negative financial consequences of a possible loan default. It is underwritten by an insurer rated A by A.M. Best and A+ by Standard and Poor’s.

If you’ve entered the non-QM sector or are planning to, learn more about how partnering with Credit Plus for these essential verifications can give you greater peace of mind. Contact your account executive or visit our website for more information.

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