The new standard for getting a mortgage

Small banks slowly fill in lending gap

While big banks are still stingy on the people they choose to lend to, a small handful of lenders are willing to bet on select borrowers who still have high credit scores despite a few blips on their financial history. According to an article in Bloomberg, at least 15 smaller firms this year are offering slightly riskier mortgages, sometimes at higher interest rates or requiring larger down payments, that aren’t backed by the government.

“Some lenders became afraid of their own shadows,” said RPM Mortgage Inc. Chief Executive Officer Rob Hirt, who in August started programs for borrowers with higher debt burdens or those who had sold a home for less than the outstanding mortgage. “The market is beginning to realize that if you make smart and sound loans to people who don’t fit in the narrow box, it doesn’t make them a worse risk.”

This is where nonbanks like RPM Mortgage come in, which recently announced it will begin non-Qualified Mortgage lending tailored specifically for residential borrowers who are looking for loans of up to $4M but still not inside the new QM guidelines.  

Meanwhile, the article noted that banks like Bank of America (BAC) and JPMorgan Chase (JPM) have maintained high credit standards, often above the guidelines from Fannie Mae and Freddie Mac and the Federal Housing Administration.   

This in turn has created opportunities for other lenders.

Shellpoint Partners LLC’s New Penn unit, the lender backed by mortgage-bond pioneer Lewis Ranieri, in August began offering mortgages for home buyers with debt-to-income ratios up to 55 percent and interest-only loans when borrowers have “high disposable income” or “high income potential due to their line of work.” Caliber said in June its new programs would offer new flexibility for foreign nationals or on purchases of condos without approval for government programs.

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