One Florida broker explains how bank statement loans and DSCR are turning declined files into closed loans
The mortgage market has tightened in ways that are easy to miss if you are only looking at rates. Lenders that rely on conventional mortgage products only are finding that the increasingly complex financial profiles of some investors are making qualification more difficult.
However, mortgage brokers who have built out a robust non-QM toolkit are finding a different market than their conventional counterparts. The files landing on their desks look like opportunities rather than declines.
Trent Hufstetler (pictured top), a mortgage advisor with NEXA Lending, enjoys the challenge of working those files. He described one that arrived after a builder's lender had already passed on it.
"I've worked with somebody where they thought they were safe and secure with the builder's lender," Hufstetler told Mortgage Professional America. "They're a business owner, and they bring in over $200,000, and they just want to buy this $400,000 house. Suddenly, their lender's saying, 'No, you don't qualify because you make $50,000.' So I said, 'Don't send me those tax returns, I don't care about them. Send me your bank statements.’ That's how you get it done."
Finding an outlet for stuck investors
In addition to bank statement loans, Hufstetler said the debt-service coverage ratio (DSCR) loan has become one of his most useful tools in the current Florida market. Inventory is elevated, and some investors are sitting on properties that are not selling.
He had a property himself that he intended to flip, but could not move at a price that made sense. Rather than take a significant loss, he put a DSCR loan on it and rented it out.
"What I love about the DSCR right now is it's allowing a lot of investors to pivot, not panic," he said. "There's a whole adjustment that's still happening in Florida. Certain sellers won't budge, buyers say, 'If you're not giving me credit, I'm not buying.' Investors are having the same problem — 'Hey, my property is not selling. What do I do with it?' The DSCR is a great option because returns are messy for a lot of investors, and I don't need them on DSCR."
Hufstetler said the other advantage is being able to present all options from the first conversation. Even lenders who have access to DSCR products often present conventional options first before handing the file off to their alternative DSCR lender.
"Why not start with somebody who has the options versus trying to hope that that person's going to get it done?" he said.
Serving the self-employed borrower
Bank statement lending has become a major benefit for self-employed borrowers, and the numbers show just how large that borrower pool is. According to Tom Davis, chief sales officer at Deephaven Mortgage, there are 19 million self-employed people in the US, accounting for more than 30 million businesses.
Hufstetler said the product uses deposits rather than tax return income to qualify borrowers, which means write-offs stay intact.
Self-employed borrowers often arrive discouraged, Hufstetler said, after being told to reduce their deductions and come back in two years. Many of them simply stop trying.
"Those types of clients tend to get discouraged, and they go, 'You know what, maybe I'll just stay renting,'" he said. "It's harder to re-engage some people after they've been told no unless you have somebody who says, ‘I know there's a way to get this done.'"
A restaurant owner he worked with recently showed how much income can be hiding in a set of bank statements. The owner came in assuming they would not qualify, but Hufstetler pulled statements across three restaurant accounts.
"They're like, 'Which one do you want? Give me the one the money flows into. Well, for which restaurant?' I'm like, 'Just send them all,'" he said. "‘I have your income calculated at $50,000 a month. Which house would you like?'"
Hufstetler said he walks borrowers through a direct comparison between the two paths.
"I'll have people pull up the IRS guidelines and say, 'All right, look what you made if you didn't write off your income. How much in taxes do you pay now? And we'll need a two-year average,'" he said. "'So does that number make sense, or does putting a little bit more down and doing it this way as a non-QM loan make more sense for your business?' They're like, 'I'll take the non-QM.'"
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