A significant proportion of applications for non-qualified mortgages (non-QM) are prevented from receiving approval as a result of straightforward administrative issues, according to data from Computershare Loan Services.
The company’s Loan Services division is a leading international third-party mortgage service provider, and recently analyzed the post-close due diligence reviews they undertook in the U.S. over the course of a year. Computershare found that non-QM applications were most likely to fail as a result of falling short of credit criteria (54.5 percent).
However, of those who were unsuccessful as a result of not meeting credit criteria, 22.2 percent failed because they had submitted incomplete information, 9.4 percent of those that were identified as having credit issues were unsuccessful as a result of originators not updating the application to reflect final documentation, and 8.6 percent could not proceed as a result of insufficient or out-of-date documentation (such as bank statements that were more than 30 days old), the Computershare data revealed.
The company also discovered that 38.4 percent of application failures were caused by incidences of non-compliance or other regulatory issues among the applications, and 11.6 percent of these were as a result of missing evidence of the Closing Disclosure (CD).
“Our data help contradict the misconception that non-QM lending has parallels with the subprime lending that affected the financial sector a decade ago,” Computershare Loan Services (in the U.S.) CEO Tom Millon said in the report. “Non-QM products can help lenders serve high-quality borrowers with good credit records whose circumstances are nevertheless distinct enough for QM loans to be less likely to be available.
“Clearly administrative issues affect both QM and non-QM loan applications, and it’s vital that borrowers and originators ensure that all the I’s are dotted and T’s crossed on their applications to avoid unnecessary problems,” Millon added. “Computershare’s dedicated team of compliance and due diligence experts allows us to target issues and work directly with clients to avoid or overcome them.”
As with QM lenders, non-QM providers rely on an evaluation of the borrower’s ability to repay before lending to them, taking into consideration credit history, asset position and the valuation of the property.
As part of this process, applications that include fraudulent information or documentation are declined immediately, escalated for further review and then reported to the authorities. During this analysis, Computershare also uncovered a surprising proportion (2.6 percent) of applications that did not include confirmation of their delivery by mail, suggesting a lack of training or in-line quality reviews among originators. Issues with property or collateral, such as incomplete appraisals, were the third most common type of application failure (7.1 percent). Computershare said that the high instance of incomplete submissions was likely the result of the large proportion of applications coming from brokers.