Magazine article American Banker

Nonconforming Loans Offer Great Opportunity

Magazine article American Banker

Nonconforming Loans Offer Great Opportunity

Article excerpt

The following article by Mr. Eickhoff, president and chief executive of Advanta Mortgage USA, San Diego, originally appeared in a slightly different form in Equity, published by the National Secondary Market Association.

As mortgage lenders, many of us have prospered during this time of great change. The marketplace has been flooded with quality homeowners wanting to change to lower interest rates. But what happens when refinancing by "A" credit quality customers dries up?

Enter the world of noncoforming mortgage lending. To define nonconforming is simple. It's anything that Fannie Mae and Freddie Mac are not.

Jumbo mortgages, home equity credit lines, construction loans, swing and bridge loans, loans for credit quality less than A, and higher loan-to-value or debt-to-income ratios, are all examples of conconforming mortgages.

In today's economy, with high unemployment and depreciating home values, a growing number of nonconforming mortgagess are coming from the quality-credit segment.

A Different Culture

As the economy began to run into trouble, nonconforming credit lenders saw their market share increase.

A nonconforming loan is different from a traditional mortgage, and nonconforming lenders understand the unique ways required to originate, underwrite, fund, service, and securitize these loans.

Like any industry with an increasingly high profile, the nonconforming market is also a favorite target for regulators.

Ill-conceived restrictions on products and prices will likely drive some niche lenders out of the market and increase pricing to those consumers in high-risk classes. …

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