Alternative Lending

As every mortgage originator knows, regulatory compliance is a huge part of today’s mortgage industry and it is an ever changing landscape. As a result, many people continue to have questions regarding what we can and cannot do in today’s environment.

Mortgage industry professionals and mortgage applicants are talking about compliance and how it differs for Agency government programs versus Non Prime alternative lending programs. It must be made clear that all federally related mortgage loans, Agency and Non Prime must adhere to the same federal and state regulatory requirements. This includes fair lending laws, RESPA, TILA, the new TRID rules, etc. The difference between loans that meet agency guidelines versus non prime is the Qualified Mortgage or the QM tag versus NonQM. Currently, loans eligible for sale to the government agencies and GSE’s (Government-Sponsored Enterprise), this includes Fannie Mae, Freddie Mac, FHA, VA and USDA are considered to be Qualified Mortgage mortgages. This includes points and fees being a maximum of 3% and the Debt to Income ratio being a maximum of 43%. Non Prime loans on the other hand are underwritten to meet the “Ability to Repay” standards, but neither meet the standards of Qualified Mortgages, nor are they eligible for sale to the government agencies or GSE’s. These loans generally exceed the 3% points and fees threshold and the 43% debt ratio. Because these Non Prime loans are underwritten to meet the general ability to repay requirements, they are much safer than the old subprime model. Each loan is fully underwritten and evaluated to ensure the decision to lend is sound and based on sensible lending standards. This is a fast and dynamically growing unconventional loan world of non prime lenders specializing in providing options to good borrowers that may not have other mortgage lending options. These loans are manually underwritten to produce solid loans that have now historically performed to the extent that this non prime lending market continues to grow and thrive.

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