�Non-Agency Lending

July 2022

Why Non-QM?

• US Bureau of Labor estimates approximately 54 million US workers are working in some type of self employment
• IRS estimates that there are close to 26 million people in the US who are issued a 1099 for all or a portion of their annual compensation
• 1–4-unit residential properties represent approximately 53% of the total rental market
• Estimated value is $4 trillion dollars

What is Non QM NOT

• Non QM is not sub-prime
• Non QM is not for high LTV Agency turn down transactions
• Non QM is not High Prices Interest Rates and Points
• Non QM is not for marginal transactions where borrowers cannot get approved anywhere else

What is QM

• Non QM is an opportunity for high-net-worth borrowers with very complex tax structures to maximize their lending ability
• Non QM uses a Cash Flow/Asset Based method to qualify borrowers instead of the traditional income-based method used by agency type guidelines
• These are Story Book Loans
• *THE STORY IS IMPORTANT*
• *TELL US THE STORY*

CONCLUSION

THIS MARKET IS HUGE AND GROWING

$$$$$$$$$$$$$

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*For the most recent 12-month period (July 2021-June 2022), HomeBridge has successfully funded:

4,531 Loans for $2,503,930,000

($2.5 Billion)

Income Documentation/Qualification Advantages

• Full Doc: 1 year self employed tax returns
• Ability to use YTD P&L provided business bank statements show deposits that are:
• A. Part of borrower's income stream
• B. total at least 90% of gross receipts list or P&L
• Rental income from ADU allowed on purchases using appraisers' opinion of market rent
• Asset utilization 10-year amortization
• Non occupant co borrowers allowed

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12 Month Business Bank Statement

• At lest one applicant must disclose their primary source of income from self employed activity
• 1^st time home buyers with 12-month housing history acceptable
• Non occupant co borrowers are allowed with some additional requirements
• Co applicants can also provide additional income from traditional sources
• Self employed applicant can use additional documented traditional sources of income (non primary source)
• Gift funds/gift of equity allowed with some additional requirements

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• Applicants qualifying income is based on average monthly business deposits (Cash Flow Method)
• Most preferred method is use of business bank statements
• Applicant must own 25% or more of the business to use business bank statements
• If applicant wants to use business assets for down payment/closing costs they must own 51% or more of business

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1099 Only Program

• This qualification method essentially follows the same principals as the business bank statement option except we use 2 most recent years 1099’s instead of bank statements or tax returns
• Document YTD checks stubs or, if not available, we will need bank statements for current YTD
• Use a 25% uniform expense ratio instead of 50% used with the business bank statement option

Examples

Example of Real Estate Agent 1099

• 2020 1099 =$190,000
• 2021 1099= $230,000

_____________________

$420,000

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• $420,000 / 2 years = $210,000
• $210,000 / 12 months = $17,500
• $17,500 X 75% net ratio = $13,125
• $13,125 is our qualifying income using the simple 25% uniform expense ratio

Example of 12 Month Business Bank Statements

• Total Deposits = $420,000
• Borrower owns 50% of the business/ $210,000
• $210,000/12 = $17,500
• $17,500 x 50% expense ratio = $8,750
• $8,750 is our qualifying income using the simple 50% uniform expense ratio

Investor Cash Flow Option

• No employment, income or DTI required
• Qualification is based only on the Debt Service Coverage Ratio (DSCR) of the subject property
• To determine the DSCR you only need 2 things:
• What is the Mortgage Payment on subject property
• What is the Monthly Rent on the subject property
• Monthly rent should be equal to or greater than the Mortgage Payment (DSCR= 1.0)
• At least one applicant must have at least a 12 month history of owning and managing a rental property
• NO first-time homebuyers (primary or investment)
• Gift funds are allowed provided borrower has at lest 5% of their own funds in transaction
• Gift of Equity is allowed with maximum 75% LTV and borrower has at lest 5% of their own funds in transaction

Investor Cash Flow Option

• Purchases we use 100% of market rent determined by the appraiser. No lease is required
• Refinances we use 100% of the lessor of market rents or current lease amount. Lease is required
• Rental of ADU is also acceptable provided it is a legal ADU
• If you have an LTV 70% or below and a credit score of 700 or above there is no minimum debt service coverage ratio (DSCR) requirement
• Example:
• 720 credit score
• 70% LTV to $2.5 million
• No minimum required DSCR

Asset Qualifier

• No employment, income or DTI required
• Qualification is based only on post closing assets
• There are 3 methods to determine the required Post Closing Assets based on YOUR individual loan scenario
• Assets are generally required to be seasoned for 6 months to prove that they are borrower’s long-term assets

Asset Qualifier

Eligible Assets for Down Payment and Closing

• Gift funds
• Business assets
• Cash out refi proceeds from another property
• Proceeds from sale of property

Eligible Assets for Post Closing Qualification

• Proceeds from sale of property
• Savings/Checking at 100%
• Marketable securities at 80%
• Bitcon at 50%
• Retirement funds
• Retirement age at 80%
• Nonretirement age at 70%

Foreign National Borrowers

• Borrowers who do not work in or live in the US
• IRS form W-8BEN, Certificate of Foreign Status must be filed with IRS
• Valid Foreign passport and Visa is required
• Canadian citizens do not need a Visa
• Available only under the Investor Cash Flow methods
• Available for 1-to-4-unit Investment Properties
• If borrower(s) have US credit history, then the minimum credit score is 680
• Foreign credit does not need to be provided, documented or verified

Foreign National Borrowers

• Assets required for down payment and closing need to be transferred into a US Bank Account and must be sourced and seasoned for 60 days
• Assets for reserves can remain in a foreign account

Intermission Recap

• Non Agency Lending-Non QM is HUGE Business
• Ideal for complicated High Net Worth clients that traditional lending practices cannot accommodate
• ***Cash Flow/Asset Base***
• Two (2) options where no employment or income is required
• Two (2) options where no Federal Tax Returns are required
• Do YOU know anyone who is self-employed, Independent Contractor, Residential Property Manager or owns Residential Investment Real Estate?

OK�Here is the #1 Challenge�***IT IS US***�You and Me!

Question

• Why are we concerned about pricing before we document all the important characteristics of the transaction that could affect pricing?
• Most likely we are talking to the potential customer because they already know they are not able or willing to provide the information to get a traditional Income Based Agency Loan.
• Pricing is Risk Based. Before we talk about “the price”, let’s find out the story.

Concerned about Payment Shock Caused by the current Interest Rate environment?

Solution

• 30-year term with first 10 years I/O
• Example: $600,000 sales price, 80% LTV w/ 741 Credit and 40% DTI Alt Doc 2-year, Bank Statement
• Price:
• 30-year amortization @ 7.125% w/ 1 pt.
• $3,234 P&I
• 30 year I/O @ 7.250% w/ 1 pt.
• $2,900 I/O

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** 30 year I/O payment equivalent to a 6.10% payment

NOTE: $600,000 sales price, 80% LTV w/ 741 credit and 40% DTI conforming FNMA 5.75% @ 1pt. $2,801 P&I

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WHY Non QM?

• We are selling OPPORTUNITY
• We are selling SOLUTIONS and ALTERNATIVES

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• We are NOT selling PRICE
• We are NOT selling WHAT EVERYONE ELSE IS SELLING

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" There are those that look at things the way they are and ask why? I dream of things that never were and ask why not" -Robert F Kennedy