Citadel Servicing Corp. discovered a need for non-prime lending and launched a product to serve this segment of the market.
The company's CEO and Chairman Dan Perl discussed the process of constructing a platform to originate non-prime mortgages on the radio show Capital Markets Today.
"Since 2007 brought a tremendous amount of assets that people deemed unable to be financed, we surveyed what the competition was doing outside of Fannie Mae, Freddie Mac and the government arena and discovered there was nobody out there," Perl said.
This discovery prompted Perl to create a non-prime mortgage product that could meet new regulatory standards.
Perl started to approach money funds with the idea that the product could eventually be securitized and sold off. This took 18 months to come to fruition and came with a lot of rejections, but after nine to 10 months, people started to believe that there was a market for the product, Perl said.
"So, I set up a program of 30-year short-term balloons, 5 or 7 years, and went into the market place with an attempt to try and put together a very Dodd-Frank and Consumer Financial Protection Bureau mortgage friendly program," Perl explained.
In the beginning, the company funded $12 to $15 million of the product, but then, they realized investors would buy it.
The only difference between Citadel’s non-prime product and Freddie Mac and Fannie Mae is in asset depletion, with regards to Dodd-Frank and the CFPB.
Perl said, "If you have a significant amount of capital that is not deployed in the purchase or the refinance of your property. We can give you credit for that capital over the initial 7-year term in the form of income."
Additionally, on the compliance side, Perl said they are required to give a 7-day shopping period upon acceptance of initial disclosures.
However, Citadel still requires borrowers to file and fill out the same paperwork and documents as Fannie and Freddie.
Overall, Perl said Citadel is there to provide a stepping stone to repair credit and allow first-time home buyers the chance to get into the game.