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Portfolio Mortgage Programs

There are two types of mortgages: qualified and non-qualified. The difference is whether or not the government agencies protect the lender against any type of lawsuit against them should a borrower become unable to afford their mortgage payments and want to sue.

Portfolio Mortgage Programs

Portfolio Loan Programs

The government created measures to counter the impact of the most recent housing crisis. This was done specifically in the form of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by President Barack Obama in the summer of 2010.

Apart from implementing regulatory reform, the new law created minimum standards for mortgages. This includes the Ability to Repay rule and a definition for Qualified Mortgage Loans. These revisions were put into action on January 10, 2014, by the Consumer Financial Protection Bureau (CFPB).

All these changes have also led mortgage loans to be divided into two types: qualified and non-qualified. Let’s explore the differences between the two.

Differences

Qualified Mortgage (QM) is a category where loans are more stable, with well-defined requirements. It is primarily intended to assist individuals who have been proven to afford a loan. The lender makes that effort to really determine that you, the borrower, have the financial ability to repay your mortgage even before you take it out. It does so by looking at documents like bank statements or a credit score report.

Non-qualified Mortgage (Non-QM), on the other hand, is the category that covers all those loans that don’t fit the QM characteristics. Therefore, it accommodates people who do not have the standard documentation to prove that they are capable of making those mortgage payments. If you do not fit into the conforming model but still have the credentials like sizable assets or a big, if sporadic income, you can qualify for a non-QM.

The main difference between these two types lies in liability protection. In a QM, government agencies protect the lender against any type of lawsuit should you become unable to afford their mortgage payments and want to sue. A lender, in this case, is also safe against penalties should the borrower default. For non-QM, loans are available to borrowers, yet the lender is not provided with protection if sued by the borrower.

Non-qualified Loan Scenarios

There is a perceived demand for Non-qualified Mortgages. Deutsche Bank Securities placed non-QM origination volume at around $50 billion. The market for this type of loan typically includes individuals experiencing one or more of these unique circumstances:

  • Self-employed for less than 2 years
  • Self-employed and not showing a great amount of income on tax returns
  • High debt ratio yet plenty of reserves to make up for the debt ratio
  • Blemished credit due to unforeseen circumstances during the downfall of the economy

Immediately following the housing crisis, loans for borrowers in any of these predicaments was hard to find, but they are more readily available today by a variety of lenders.

Ability to Repay Rule
It needs to be stressed that a non-qualified loan does not mean you cannot repay the loan. The lender is still going to do due diligence in evaluating your financial situation. They will not provide loans to borrowers that do not demonstrate the ability to repay the loan. The Ability to Repay Rule put into place by the Dodd-Frank Act, requires lenders to ensure that borrowers can afford the loan. This means:

  • Verifying income and asset
  • Verifying employment
  • Accurately calculating the debt to income ratio
  • Evaluating credit history

Lenders are able to charge higher interest rates and/or fees for loans that pose a slightly higher risk than a Qualified Mortgage would allow, yet they must make sure the payment is affordable. What this means is the days of stated income and stated asset loans are gone. Lenders need solid proof that the borrower can afford the loan with slightly higher rates and/or fees with ease. They are not supposed to put borrowers in a difficult financial situation.

When your ready to get started on our Portfolio / Non-QM loan, we are experts to guide you through the entire process, the first step is getting you pre-approved. You can click on the button below or apply online; if you prefer to speak with one of our Mortgage Experts, we would be happy to speak with you at 888-259-2257.

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*Assumes 2.799% APR, 20% down payment, and conforming 30-year fixed rate first mortgage on a single family, primary residence. The monthly payment you enter includes only principal and interest. Additional required amounts such as taxes, insurance, home owner association dues, assessments, mortgage insurance premiums, flood insurance or other such required payments should also be considered. Not all individuals will qualify for a mortgage loan based on the payment entered. Rates cited are for instructional purposes only; current rates are subject to change at any time without notice.  **Posted APR is based on Mortgage Assumptions
 
 
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