Non-Prime Loans Are Safer Than You Think

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When non-prime (or non-QM) lending returned to the market again early last year, it wasn’t welcomed back with open arms. Many critics were concerned that these products were the same as the sub-prime loans that led to the housing crisis and were afraid that history would repeat itself. In fact, sub-prime and non-QM are quite different. New regulations have helped to ease non-QM loans back into the market.

Source: Why Non-Prime Loans Are Safer Than You Think

Realtors/Borrowers
Don’t Get Stuck In the QM Box

mike nelson equity primeI am licensed in Florida, Colorado, and California for a couple of reasons.  The first of which is family – I have a lot of family in California and my wife and I want to visit for extended periods of time.  Since I still need to work – we want to incorporate these extended work visits with re-connecting to family and friends.

michael nelson equity primeMy wife and I are also partial to the Gulf Coast of Florida.  We won’t tell you that Anna Maria is our favorite spot on the planet and we want to purchase property on the island.  Many houses are still affordable so we don’t want the secret to get out.  Live your dreams – right?

 

mt elbert
Top of Mt Elbert – 14,433 feet above sea level

Lastly, we have lived in Colorado for about 15 years.  Colorado is a spectacular state.  The Rockies live up to the hype for sure.  Get in shape and hike a 14’er you will be glad you did.  We want to stay in Colorado during the beautiful summer months and enjoy California and Florida in the winter.

 

 

What does this all have to do with lending?  Well, these three markets have much in common.  The need for non-q markprime products is shared by all three of these wonderful states.  Working with a lender that can only provide QM products will limit a legitimate and legal funding resource for many of your customers.

These non-prime products are mis-understood and are much maligned.  Yes, it is true that the financial crash was caused by non-prime products – you can decide if it was the government, or borrowers, or the banks or a combination of all three.  I am frequently asked if these products are legal and are these loans “above the table”.

The answer is a resounding “yes”.  These products are certainly legal and they are certainly above the board.  For starters, a reputable lender and reputable mortgage loan officer is not going to put their license at risk and knowingly originate a bad loan.  I understand there are exceptions to this, but if you ask questions and spend time working with the loan officer you will know if you are working with a LO who has your best interest in mind.

Mike Nelson Equity PrimeSecond, these products still have regulation attached, they have to be underwritten, and they have to fulfill certain requirements of ability to repay, down-payment structure, no prepayment penalties, and FICO scores.  These features are different than the days of old.  I have attached the article above to provide additional information.  Make sure you take time to give it a read.

The Qualified Mortgages (QM) of Fannie, Freddie, and the government are wonderful products that allow liquidity and stability in the market place.  However, these products do “Put Some Borrowers In A Box” and consequently restrict their access to capital.

michael nelson equity primeA bank statement loan or a loan on a non-warrantable condo are examples of non-prime products.  A bank statement loan, among other things, can support the private business owner who has significant expense associated with their business and can still satisfy credit and ability to repay. These are individuals who will not qualify under the conventional guidelines of Fannie/Freddie but still have the ability to service a mortgage on time.

Naturally, there are other characteristics of non-prime products which ensure an appropriate level of risk.  Interest rates are typically materially higher than QM products.  Required down payments, Loan to Value, and FICO scores usually are more restrictive as well.

Make sure your loan officer has the expertise, products, and processing staff to support your borrower needs.  Feel free to call, text, Skype, or e-mail me any questions.  I am happy to help if I can.

Happy House Hunting!

Mike

Mike Nelson
mnelson@equityprime.com
720.213.6260
@michaelfnelson2
Skype: michael.nelson2014
NMLS: 1314188
Licensed in CA, CO, & FL
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