Big Opportunity in Non-QM Loans

Joshua Roberts/Bloomberg

WE’RE HEARING that lenders are only going to make qualified mortgages that meet the ability-to-repay underwriting standards mandated by the Consumer Financial Protection Bureau. It will be too risky do otherwise and originate non-QMs.

If that is true, it is going to create a huge opportunity for some lenders who are willing to take the risks, including three fellows from the CFPB who are starting a new mortgage company.

Former CFPB deputy director Raj Date left the bureau in late January to launch an investment advisory firm he calls Fenway Summer. The Red Sox fan located the office in the Georgetown section of Washington. Fenway Summer’s first venture is to launch a wholesale mortgage company.

This venture will table fund non-QM loans and assume all the risks from the lenders. This new channel will provide an outlet for regional banks as well as mortgage brokers.

While it may be difficult for existing lenders to take this approach, Date with his Wall Street experience doesn’t mind taking “smart risks.”

CFPB veterans Mitchell Hochberg and Christopher Haspel have joined Fenway Summer to start up the mortgage company. They intend to build an underwriting engine that will identify good non-QM loans to fund.

Hochberg is the general counsel and Haspel will run the mortgage company. Haspel has experience in structured finance, servicing and capital markets. He has worked at Fannie Mae, BlackRock and GE Capital.

“It is way too hard for good customers to get credit,” Date told NMN.

The managing partner of Fenway Summer noted that 10% to 15% loans of originated today have debt-to-income ratios greater than 43% and fall into the non-QM bucket. The mortgage company might also focus in interest-only loans, which are classified as non-QM loans.

CFPB director Richard Cordray has repeatedly told community bankers and credit union officials that they have nothing to fear if they stick to their traditional underwriting. He has encouraged them to continue to make non-QM loans that have a history of good performance.

But the industry is so shell-shocked by the mortgage debacle and onslaught of mortgage laws and regulations—they just don’t believe it.

When asked if Fenway Summer is trying to prove that Cordray is right about non-QM loans, Date replied with a quick no.

“I am not trying to prove anything one way or another. We are a commercial enterprise,” he said.

But he stressed that non-QM loans present an attractive opportunity.

“When we see an opportunity that is big, that is attractive, we are not going to be shy,” Date said.

MORTGAGE TRASH: Garth Graham gets the nod this week for most interesting blog, when he compares old mortgage customers to trash. He’s not exactly putting old customers down, however. He’s using a metaphor to suggest mortgage lenders rifle through their trash, er, old marketing databases, to find customers who may be ready to get back into the market again. Garth has a way with metaphors. In past columns he has compared mortgage technologists to plumbers’ butts (and by the way, we’ve been deluged with complaints from plumbers who are tired of having cracks made at their expense) and a Fed ruling to vomit. He is so good with metaphors in fact he’d have to be considered in the running for Mortgage Poet Laureate. He’s a poet, but he don’t know it!

THANK YOU: A shout out goes to Mortgage Builder for inviting us to their annual users conference in Detroit’s Renaissance Center. More than 100 folks came to hear updates on Mortgage Builder offerings (they are in both the originations and servicing space), join in on discussion topics like the secondary market (and lack of it) and hear from industry speakers. The speaker at the awards breakfast was especially brilliant! Events in the exhibit hall and a dinner cruise on the Detroit River provided social activities. Thanks to Keven Smith (his mother told us why he has two “e”s in his name!) and the rest of the Mortgage Builder staff for inviting us and for having their show in Detroit, a fabled American city struggling to regain some of its old glory.

SHOUT OUT: Churchill Mortgage has done it again! They’ve hired another 15 people. That makes more than 50 since the beginning of the year. We’ve given them a shout out before (we recognize here any company that hires more than ten net new employees) but give them a tip of the hat again. Hiring by private firms is the clearest sign of an improving economy, and at Brentwood, Tenn.-based Churchill they seem to be growing in leaps and bounds.

THOSE CRAZY VINERS: News of the first public monument to honor atheists distracted our Viners at www.mortgagegrapevine.com from their busy days making mortgages recently. Amid all the name calling, horseplay and other liveliness that makes up a philosophical thread on the Vine, the swell of anti-atheist feeling may make some of them stop taking the Lord’s name in vain!

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.