Lenders Are Gung-Ho On Alt-A Loans

by Michael J. Kling
on December 03, 2005 No Comments
Categories : E-Features

Lenders are continuing to pursue the Alt-A sector, called ‘one of the last bastions of profitability.’

GMAC Residential Funding Corp. (GMAC-RFC), a Minneapolis-based wholly owned subsidiary of Residential Capital Corp., has introduced new income documentation programs, including no ratio, stated income/stated asset, no income/no assets and no doc products.

Chase Home Finance, Iselin, N.J., has added alternative documentation options to its amortizing and interest-only adjustable-rate mortgage products.

The new Chaseflex ARMs, like the current Chaseflex fixed-rate programs, include full doc for larger loans and smaller down payments; no income verification – income is stated but not verified, assets are verified; no ratio – no income is stated or verified, assets are verified; and no doc – neither income nor assets are stated or verified.

The documentation programs are available on fully amortizing 5/1, 7/1 and 10/1 ARMs, as well as interest-only ARMs. Those interest-only loans call for interest-only payments for the first five, seven or 10 years.

The new products are part of Chase’s effort to increase volume across all channels, including volume through both new and existing correspondents, says Tom Garvey, vice chairman, Chase Home Finance.

‘We’ve been on the move and developing new products, particularly Alt-A, no income and no ratio,’ Garvey says.

The company hopes to increase its retail sales force by 800 to 1,000 over the next two years and its number of brokers and correspondents by 10% to 15% next year, in addition to increasing volume through existing relationships. It has also enhanced its automated underwriting engine, Zippy, to deliver quicker responses for the new products, he adds.

Offers Alt-A training

In an effort to capture more Alt-A product, Impac Lending Group (ILG), Newport Beach, Calif., has stepped up training for brokers and loan officers. ILG, a wholly owned subsidiary of Impac Mortgage Holdings Inc., has partnered with LoanOfficerSchool.com to offer free, half-day training sessions called ‘How to Make a Fortune in the Alt-A Market.’

Open to both beginning and advanced brokers and loan officers, the program will provide ‘real nuts and bolts mortgage training’ that will help them close more loans, says Don Currie, senior vice president and director of national sales for ILG. Although the sessions are open to all brokers and loan officers, ILG believes it will benefit from greater loan volume from class participants.

‘If it helps brokers generate more loans, they’ll give us a shot,’ Currie says. ‘If we help them, they’ll reciprocate.’

Participants can also get accreditation credit with the California Department of Real Estate, he says, adding that processors, often hoping to become loan officers, may also be interested in the sessions.

‘When brokers leave that class, they are able to close more loans,’ Currie says. ‘A lot of brokers go to seminars and are disappointed that they’re selling something. None of that happens at our seminars.’

As other markets, such as the subprime and refinance sectors, continue to constrict, brokers are becoming hungrier for business.

‘The Alt-A market is an exploding area,’ Currie says. ‘While other areas, like subprime and refinance, are constricting, Alt-A is still one of the last bastions of profitability.’

Many are confused about Alt-A, he says. Unlike subprime borrowers, Alt-A customers have good credit, but either can’t or won’t document their income or assets. ILG’s typical borrower has a credit score of 690 to 700, puts 10% down, and most, 75%, complete stated-income loans. ‘Half of them can’t or won’t tell us where their down payment came from,’ Currie says.

‘The beauty of Alt-A is you’re dealing with a very high level of customer,’ he says, adding that the company requires established credit. ‘That does mitigate risk.’

Planned to be ongoing, the Alt-A classes are getting underway this week, with sessions in Miami and Phoenix. Sessions are also planned for such cities as San Francisco, San Diego and Palm Beach, Fla., in January and February.

Products converge

Most originators now routinely offer Alt-A as well as prime and subprime loans, according to a recent survey by Campbell Communications, a research firm in Washington, D.C.

The study points to a significant convergence of the Alt-A, prime and subprime broker communities. Nearly three-quarters of the brokers surveyed reported that they now regularly originate all three types of mortgages, and very few appear to concentrate on just one major type of product.

‘Three-quarters of all mortgage brokers surveyed make at least one loan per month in all three product categories – prime, Alt-A, and subprime,’ says Thomas Popik, a principal with Geosegment Systems who designed the survey and authored the final report. ‘That has big implications. It means that Alt-A and subprime lenders can no longer focus their sales efforts on a few specialty brokers. For maximum market share, they have to cover nearly the entire broker base.’

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