Niche Products
Hello, and thank you for joining me. My name is Fernando Zoota and I am your host for the podcast and blog, Non-QM Insider, the show where we talk about regulations, guidelines, and anything having to do with non-qualified mortgages. Today’s topic of discussion is niche Non-QM product. There’s a lot of niche products and by niche I’m refereeing to loans for ITIN borrowers, 1-to-3-month bank statements, non-warrantable condos, condotels, P&L only, 1099 only, non-permanent resident aliens (somebody who’s here on a visa) and foreign nationals (someone who lives and works abroad).
All the products mentioned are good in certain circumstances and should not be disregarded. However, they’re niche programs designed to get the phone to ring and that’s about it. I’ll give you an example. I was a pioneer for Citadel Servicing’s ITIN program as it was one of the first of its kind, at least in my home state of Texas. I marketed the product hard, and I was convinced it was going to be a gold mine for me. I thought “What kind of yacht am I going to go by with all this ITIN money?” In reality, that did not happen. The market moves fast, and program guidelines change quickly. Still feel like I know more than most people about ITIN loans. At the end of the day, you’re going to review 20 ITIN scenario to find 1 loan that works. That’s because of layered risk (how much risk am I going to take on for a potential borrower). By the sheer fact of being a Non-QM borrower, there’s a layer of risk and then you add an additional layer of risk by having an ITIN number. If you don’t know what an ITIN is, I have separate podcast on the website, non-qminisider.com, which explains it in more detail. In short, if you have an Individual Taxpayer Identification Number, it means that you’re not a citizen, you’re not a permanent resident alien (who’s essentially treated like a citizen), you’re not a non-permanent resident alien, (somebody with a visa), and you’re not a foreign national, (somebody who lives and work abroad). You’re living in the United States, with none of the above listed designations. You’re living in the gray area. If that person is self-employed, with a successful business, you can get an Individual Taxpayer Identification Number to file taxes. This is probably a good thing if you’re planning on becoming a citizen.
Like I mentioned earlier, you’re going to look at 20 scenarios to find 1 loan that works. Generally, the loans amounts are small. There’s not a lot of meat on the bones. Additionally, loans with these characteristics tend to need more of your attention throughout the loan process.
So, you look at 20 scenarios, you get 1 loan, and it’s a low loan amount. At that point, you say “Boy, this is a lot of work for very little reward.” It plays out the same way for a 1-month bank statement loan, or any of the other niche programs. You’re going to look at a lot of scenario’s, but because of layered risk, very few work out. I’m not going to discuss the challenges of every single niche product, because that’s not the point. The point is, niche products are designed to get the phone to ring. That’s it. If you’re in the Non-QM business, what keeps the lights on every day over and over again, is bank statements for income. Bank statements for income, 12 or 24 months, business or personal bank statement. A distant second, (management would disagree) is Debt Service Coverage Ratio (DSCR) loan. A DSCR loan, is a Non-owner-occupied property that qualifies based on its ability to cash flow. I’m charging or plan on charging $2,000 a month for rent, and my overhead is $1,500 a month and I’m going to make $500 a month (there’s a separate podcast about DSCR loans). If you’re an account executive (like myself), a mortgage broker, or a loan originator and you’re trying to drum up business, don’t invest a lot of time and energy into niche products. What’s going to pay the rent, and keep the lights on, month after month, is bank statements for income. That’s it. Bottom line.