More than a decade after the 2008 financial crisis, the mortgage lending market nationwide—and in Baton Rouge—is reopening to risky, or unconventional, borrowers, as strict lending requirements put in place after the crisis begin to loosen.
Home buyers lacking traditional employment, as well as those with low credit scores or high debt, are now finding it easier to obtain credit, The Wall Street Journal reports.
Lenders are seeing an uptick in what’s called non-qualified mortgages, or non-QM, which don’t meet the postcrisis standards set by the Consumer Financial Protection Bureau for qualified mortgages. Borrowers took out $45 billion of these unconventional loans in 2018, WSJ reports, and such loans are on track to rise again in 2019.
Baton Rouge mortgage lenders say they, too, are seeing an increase in the non-QM market, though these unconventional loans do not make up a large portion of their business.
“As a percentage of our overall business, it’s not substantial, but comparing last year to this year, we’ve seen a significant increase,” says GMFS Mortgage President Tee Brown. “(Non-QM) made up maybe two percent of our business last year and five percent this year. It’s definitely growing.”
Assurance Financial owner Kenny Hodges also reports an uptick in non-qualified mortgages but says it might only make up 2% or 3% of his business.
“It is fair to say that the credit box has opened more as we’ve gotten further and further away from the financial crisis,” Hodges says. “It has been a supplement to our business and has given opportunities to people who otherwise wouldn’t be able to get into a house.”
While non-qualified mortgages have been described as the new subprime mortgages, connected to the financial crisis, lenders say the loosened standards don’t rise to the same level of what was taking place ahead of the 2008 crisis.
Brown says non-qualified mortgages give opportunities to people, such as self-employed borrowers, who don’t meet the standards or have the documents required for traditional loans, such as W2s and pay stubs. Non-qualified mortgages can use bank statements to verify income and ability to repay the loan instead.
Lenders can still get a feel for borrowers’ cash flow and credit depth based on monthly deposits and bank statements, Brown says.
“It’s definitely a lot different from where we were in 2006 and 2007 (ahead of the crisis),” he adds.