No Pay Stub? No Problem. Unconventional Mortgages Make a Comeback
From Realtor.com:
Aryanna Hering didn’t have pay stubs or tax forms to document her
income when she shopped around for a mortgage last year—a problem that
made it tough for her to get a loan.
But the nursing student who
works part time providing home care for children and the elderly
eventually hit pay dirt: For a roughly $610,000 home loan, a mortgage
company let her verify her earnings with 12 months of bank statements
and letters from clients.
Ms. Hering’s case highlights how a flavor of mortgage once panned for
its role in the housing meltdown a decade ago is making a comeback.
These loans, aimed at buyers with unusual circumstances such as those
who can’t provide the standard proofs of income, are growing rapidly
even as rising interest rates and higher home prices crimp demand for
mortgages.
Lenders issued $34 billion of these unconventional mortgages in the
first three quarters of 2018, a 24% increase from the same period a year
earlier, according to Inside Mortgage Finance, an industry research
group. While that makes up less than 3% of the $1.3 trillion of mortgage
originations over that period, the growth is notable because it came as
traditional home loans declined. Those originations fell 1.2% over the
same period and were on track for a second down year in 2018.
During the financial crisis, many unconventional loans soured after
borrowers misstated their incomes and lenders didn’t ask for
documentation, earning them the nickname “liar loans.” Today, industry
executives say the new unconventional mortgage, now referred to as
“nonqualified” in industry jargon, has changed drastically from its
crisis-era predecessor and is far safer.
Even so, some regulators,
consumer advocates and others worry that the growth in this type of
mortgage and rising competition to make such loans could lead to renewed
risks for the housing market.
“It’s a slippery slope,” said Mat Ishbia, the president and CEO of
United Wholesale Mortgage, a large nonbank lender that doesn’t issue
these loans.
So far, specialty mortgage companies have dominated
in making such unconventional loans. But traditional lenders, which are
doing less conventional business as interest rates rise, are turning to
borrowers with harder-to-document creditworthiness as a new source of
revenue and are helping to drive the growth. Nearly half of lenders who
participated in a recent survey said they have plans to get into this
business, according to Inside Mortgage Finance.....
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