WE’RE HEARING lenders should address the shortage of originations flowing into the secondary market by doing more to reach underserved communities.
Minority lending has room to grow, recent Home Mortgage Disclosure Act data show. Also, immigrants are on track to drive one-third of new housing growth, according to Debra Still, the outgoing chair of the Mortgage Bankers Association.
However, the secondary market has reservations about foreign-national loans that help non-U.S. citizens to buy homes. Shellpoint Partners LLC recently dropped foreign-national loans from a planned securitization in an effort to attract investors before deciding to sell whole loans instead.
Secondary market concern about these loans stemmed at least in part from their lack of credit scores. There are various alternatives to this that I am betting we will see more of if the demographics indeed shift as Still suggests they will.
No change is easy for the secondary market, particularly not when it comes to securitizations where adding non-homogenous products messes with the predictability of cash flows.
Investors like loan products with a long, measurable track record. They may feel like they need time to get used to something new to them like alternative credit scores, particularly given how badly they still feel burned by the recent downturn and the egregious expansion in loan criteria that preceded it.
However, previous experience is no guarantee of future results, as they say in all those presentations publicly traded companies give to investors. Mortgage investors hurt during the downturn know that fact well.
Credit score alternatives have some limited history for those that want it, though. Credit scores and reports have made their way to other countries and there have been efforts to make them more global over the years.
The market will have to get comfortable with these loans. Otherwise, up to one-third of a future market will remain untapped, assuming all those prospective home purchasers are in the market for mortgage financing.
That means this it is time for investors to start getting familiar with these loans now while they are in less demand, more likely to be cheap, and make up a small but growing part of the market. Establishing expertise early in a growing market can pay off.
It could mean more people who want mortgages may get them, too.
Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.