As the old saying goes, “One man’s trash is another man’s treasure”. Much talk lately has been about all those potential home buyers being shut out of the housing market as the result of the credit tightening by lenders resulting from the new ability to repay rules.
It appears that not everyone is so upset. These consumers present a windfall for some investors; particularly the REITs (Misfit Borrowers). Could this be a fore runner of a return to, dare I say it, sub-prime lending?
It seems there is plenty of money out there available for investment and those controlling that money are looking to non-QM lending to fill the void. These REITs are willing to provide funds for lending to those who, under present lending requirements, cannot obtain financing as banks are still a little wary of lending to anyone who does not fit into the QM box. They believe there are plenty of qualified buyers who just need the access to capital (where have I heard that before?) and they are willing to put their money where their mouth is.
This is the new mortgage market. Non-QM loans (sounds much better than sub-prime loans) made to those who cannot get traditional financing from traditional banks. If successful, this can fill two purposes: 1) help stabilize the housing markets, 2) provide more jobs to the mortgage industry. Both will help grow the economy.
The down side is this could lead us to a return to those thrilling days of 2007 and 2008 when everything crashed and burned. The REITs say this lending requires extensive due diligence. Let’s just hope they follow their own advice and do so.
This could be another way to spur housing and increase lending while serving a different sector of potential home buyers. It also provides an investment vehicle paying the REITs a much better return than their present investments. However, they present some serious risks.
Remember, these loans do not fit the QM safe harbor for ability to repay. Lenders making the loans and the REITs investing in them are subject to a consumer’s challenge to the repayment ability terms under TILA. I guess the REITs figure they’re worth the risk. I surely hope so, for everyone’s sake.