Inclusiv Mortgage Stepping Up in the Face of High Rates and Low Housing Inventory to Help the Under-Resourced Build Wealth through Homeownership
On May 22nd, 2023, Inclusiv Mortgage launched three new ARM loans and updated our guidelines to help under-resourced borrowers get their own homes in today’s high rate/low product market - and the response has been great. The new loans include 5/1 and 10/1 adjustable-rate mortgages (ARMs) for borrowers with a social security number, added to the current 30-year fixed offering, and a 5/1 ARM for ITIN borrowers, added to the current 10/1 ARM offering. ARMs were added because in high-rate markets, ARMs have lower rates than fixed rate loans. These lower rates can make a difference in whether a borrower can qualify for a mortgage or not.
We also leveled the playing field between the SSN borrowers and ITIN borrowers: ITIN borrowers are now getting the same rates as the SSN borrowers. This is significant because the difference in the rate can be over 2% less than before which is huge when qualifying for a mortgage. Until this change went into effect, rates were higher for ITIN borrowers because of a perceived higher risk for these loans. Typically, with a higher the risk, there is a higher the rate, however, ITIN loans consistently perform very well and in our portfolio, strongly outperforming SSN loans.
We determined it was time to set aside the perceived “paper” risk and base the rates on the loan performance. The benefit of this change goes far beyond our borrowers, extending to all the credit unions who look to Inclusiv Mortgage as a leader in the industry, and who would like to dip into the ITIN lending market but are afraid to try due to the perceived risk. By leveling the playing field, Inclusiv is giving a clear message that these are very well performing loans and there is nothing to fear. The reason these loans perform so well is because they are a family affair. Typically, a person who takes out a mortgage takes on the sole responsibility of paying that mortgage payment every month until the loan is paid off. For ITIN borrowers, however, it’s a family affair. They all pool their resources and participate in the mortgage so when an individual has a problem, the rest of the family steps up and fills the gap. The results are loans that perform extremely well.
Another challenge affecting under-resourced borrowers is the time it takes to close a loan. In a low product environment, as is the case now, there are many more borrowers trying to buy each property. This sets up potential bidding wars and can drive up the price, not only over the asking price, but frequently over what the property would appraise for. When this happens, buyers must be prepared to pay more money out of their own pocket -- money that the under-resourced simply don’t have. Sellers tend to favor cash buyers first because they know the loans will close fast. Next on the list are A-paper buyers (buyers with good credit scores, stable long-term jobs and money in the bank) who are less likely to be declined by lenders, and everyone else basically left out in the dust. In an attempt to decrease the time it takes to close a loan, Inclusiv Mortgage has changed many of its guidelines to reduce many of the required documents, making the process more streamlined.
Another thing lenders can do to help under-resourced borrowers in this type of market is to issue pre-approvals in lieu of pre-qualifications. A pre-qualification is a statement that says a borrower is approved to a certain mortgage amount, based on a review of certain documents. The problem is that these qualifications often overlook information that can cause long delays in the mortgage process or even declinations. These can be due to things like gaps in employment not previously disclosed, unfiled taxes, and undocumented assets, to name a few. Pre-qualifications also have an expiration date and need to be updated when a borrower’s situation changes, which frequently does not happen. With a pre-approval, the borrower has already gone through the entire mortgage process and gets an actual conditional approval, which means once the conditions are received, the loan is cleared to close. In this case, the conditions that need to be satisfied are typically just the contract of sale and the appraisal. With a pre-approval, loans could potentially close in a few short weeks as apposed to a month or more.
The bottom line is that lenders must be willing to re-examine how they are handling under-resourced people and meet them where they are at, instead of expecting them to bend to already existing systems that they are all too often unable to fit into.
Bob Mundy, Director of Inclusiv Mortgage