What's the most important thing about originating non-QM loans? Getting a third-party opinion.
Simply put, it is what lenders always ask for — an opinion of a lawyer or accountant who opines on the legality or accuracy of some particular aspect of business operations. By obtaining such a letter, a business demonstrates that it intended to comply with the law and sought the assistance of the appropriate expertise.
Regardless of whether the advice or opinion is ultimately correct, as long as the lender legitimately had a reason to rely upon the opinion, as a matter of law the lender has acted in good faith.
Indeed, the concept of a "good-faith belief" is neither new nor unique. Its genesis is in tax, patent, and employment law, among others, and courts routinely find that the mere reasonable and legitimate reliance on an appropriate third-party opinion is sufficient to provide legal protection under the "good-faith belief" standard.
For lenders, the critical lesson here is to obtain the opinion of a credible third party in regards to the borrower's ability to repay. By obtaining a third-party opinion that provides a reasoned analysis supporting borrowers' ability to repay, a lender places itself in a substantially stronger position with respect to subsequent ATR claims.
Of course, the basis for the methodology for the determination and the legitimacy of the source are also critical. In other words, reliance on a fortune teller would not be sufficient. Rather, the third party would have to provide a methodology that was reasonable and legitimate, and the third party should be a credible source of information, with the proper expertise to provide such an opinion.
In the coming weeks, I will address other critical aspects associated with originating non-QM loans. However, a credible third-party opinion is in my opinion the most important starting point.
