Sundeep Mathur of Tavant: The Technology-Enabled Loan Officer

Sundeep Mathur is Vice President of the Consumer Lending Practice with Tavant, Santa Clara, Calif., a digital lending solutions provider. He can be contacted at sundeep.mathur@tavant.com.

One of the primary lessons of the COVID-19 crisis was that technology is an absolute requirement for business continuity in the mortgage industry and many others. This was a harsh lesson for many as mortgage lenders do not have a solid track record of adopting new technology promptly. Despite that, the industry rose to the occasion and originated record numbers of home mortgages in 2020 and 2021.

Tech-enabled loan officers were able to meet prospects online, walk them through online loan applications served up by sophisticated new Point of Sale systems, generate the required disclosure documents with the click of a button and get them into production. Work that might have taken days or weeks with in-person meetings and physical documentation was accomplished in hours or days thanks to the industry’s adoption of technologies that had been available for some time.

Technology allowed for streamlined loan origination processes and easy borrower document uploads in the back office. In many cases, eClosing made it possible for borrowers to sign their final documents from the privacy of their own homes.

One of the most profitable new technologies lenders implemented during the pandemic was automated QA/QC technologies. It allowed the industry to originate more than $4 trillion worth of new loans in 2020 and an estimated $3.9 trillion in 2021.

These tools were critical to the industry’s efforts to keep operating during the pandemic, but now with low volumes falling, they may be even more critical.

Originating loans in a fast-changing world

Many things changed very rapidly for almost everyone during the pandemic. But for the mortgage industry, the significant change was increased volume, something the industry has dealt with effectively in the past. For us, the difference was just a matter of degree.

Now, things are different. Loan volumes are already falling, and the refinance business, which accounted for up to 75% of the volume for many lenders just 18 months ago, now accounts for less than 25% of all industry volume. In addition, the great resignation has sent millions of Americans out of the W-2 workforce and into their businesses, where they join many millions more who make a living through the gig economy.

Meanwhile, Washington has shifted the CFPB and other federal regulators back to an aggressive stance that threatens to punish any lender that makes a compliance misstep.

Finally, consumers are more empowered than before. They understand more about their credit, the value of real estate, and their ability to shop for the best deal on a mortgage.

These changes make for a much more competitive mortgage market in 2022, at least for loans sold to the GSEs. The real opportunity for many mortgage originators in the year ahead will be with Non-QM loans.

Defining the Non-Qualified Mortgage

What exactly is the Non-QM opportunity? A Non-Qualified mortgage is any loan that does not meet the GSE requirements for a qualified mortgage. It is a standard set to give lenders confidence that the loans originated and sold to Fannie Mae, Freddie Mac, and Ginnie Mae would not become the subject of a buyback request.

The standard grew out of the GSEs and regulators’ work to create the Ability-to-Repay Rule (ATR). This rule requires a creditor to make a reasonable, good-faith determination of a consumer’s ability to repay a residential mortgage loan according to its terms. Any indication that the borrower might not repay the loan pushes the loan out of the QM domain.

This means that any loan that includes any of the following is Non-QM:

• Debt-to-Income greater than 43%;
• Blemish on FICO credit due to unforeseen circumstances;
• Self-employed for less than two years; and
• Low income on tax returns.

This represents many borrowers who want home financing but can’t qualify for a Qualified Mortgage.

In the past, borrowers who didn’t qualify for a conventional mortgage were called subprime borrowers. Lending to borrowers that could not repay their mortgages eventually resulted in a credit meltdown, which is what caused the Great Recession.

So, why would any lender want to venture back into this territory? They wouldn’t, and they won’t work with Non-QM lending because these borrowers are not subprime.

How tech helps LOs make safe Non-QM loans

And this brings us back to the tech-enabled loan officer (LO) and how vital these professionals will be in 2022. When LOs can quickly access a menu of non-QM loan programs that meet the needs of their borrowers, they can increase their origination volume. When touchless lending technologies are applied, closing time improves, and borrowers’ satisfaction rises.

When correspondent lenders work with a lender who understands these products and provides the technology to underwrite them rapidly, there is less risk of getting into the same mess that trapped subprime mortgage lenders.

A good menu of Non-QM loans would include:

• Non-traditional income
• Bank Statement loans
• Jumbo loans
• Asset-based loans
• Foreign National loans
• Interest-Only loans
• Credit Issues loans
• Commercial rental property loans

When technology is employed that matches up the right loan with the right borrower and then painlessly ingests the documentation required to make the underwriting decision, LOs suddenly find themselves equipped for success.

Technology-enabled loan officers are empowered to efficiently and effectively sell non-QM loans without making past mistakes. This gives them access to a market that accounted for $18 billion in volume in 2020 and is estimated to account for up to $300 billion in loan originations this year.

When fraud detection, needs-based assessments, and confirmation of the borrower’s ability to repay are built into the platform that provides the Non-QM loan programs, LOs may feel like they’re still originating refinance loans. It will be that easy.

These Non-QM loan production platforms exist for correspondent lenders today. To see one in action, contact us.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)