(Source: NY Times) – A growing number of lenders are courting borrowers who have been shut out of the mortgage market despite their sound financial circumstances. In particular, these companies see a burgeoning market in the self-employed as well as in households with a single negative credit incident, both populations that often struggle to obtain credit.
A recent analysis by the real estate website Zillow found that self-employed borrowers receive 40 percent fewer purchase loan quotes than other borrowers, mainly because of their typically lower credit scores. And many major banks remain reluctant to lend outside the guidelines for what are called qualified mortgages, or QM loans, which are salable to government-controlled agencies like Fannie Mae and Freddie Mac.
But investors are getting behind smaller lenders who are going beyond the qualified mortgage restrictions to analyze individual borrowers’ situations. To hedge the slightly higher risk, the lenders usually charge higher interest rates and require a down payment of at least 20 percent.