It’s a simple but sometimes unfortunate truth of the post-recession mortgage market: Borrowers whose incomes are less documented have a more difficult time qualifying for a traditional home loan. The terms of the Qualified Mortgage rule and other regulatory measures have necessitated that most lenders err on the side of due diligence, which often means loan candidates must meet specific, high-barred criteria.

Fortunately, alternatives are emerging. Impac Mortgage Corp. Correspondent recently unveiled its innovative bank statement program, which accompanies its AltQM™ Income products. Both are designed specifically for the self-employed and others whose tax returns and employment history may not adequately express their financial viability. Because they can represent risk on paper, these borrowers rarely meet QM standards, leaving them to search elsewhere in an effort to fulfill their homebuying goals. The bank statement program is designed to alleviate this shortfall, determining an applicant’s ability to repay based on a more pragmatic, case-by-case approach.

Enhanced flexibility, favorable terms 

Whether for a primary residence, a second home or an investment property, self-employed borrowers will be the most likely to benefit from the bank statement program. As its name would suggest, the concept is predicated on providing evidence of solvency, specifically in the form of bank statements from the past 12 months. These can serve as the means for a down payment, in addition to taking the place of a traditional employment history or the years of W​-2 forms typically required of buyers during the application process.

A strong credit profile is still necessary – a minimum FICO score of 680 is considered the barometer – but many of the other terms associated with AltQM™ Income products are notably different from those attached to QM loans. They include:

  • No required 4506 or tax returns for self-employed borrowers
  • Up to 50 percent debt-to-income ratio
  • 5/1, 7/1 and 10/1 adjustable-rate mortgage options
  • Input/Output allowed in every state except Illinois
  • Loan-to-value ratios of up to 80 percent
  • Cash-out options of up to $350,000 for a primary residence
  • Loan amounts of up to $2 million

While the bank statement program is truly unique, there are signs the rest of the mortgage market is catching up to the evolution. As Rob Chrisman of Mortgage News Daily recently wrote, the non-QM space is becoming an increasingly high-traffic area of operation. At the Mortgage Bankers Association conference in Las Vegas, a lot of talk centered around the AltQM™ Income program, which in many ways represents the benchmark for non-QM loans. Chrisman noted the first day of the conference was characterized by an emphasis on expanding the overall borrowing pool.

“Many companies use the MBA’s conference to make major announcements,” Chrisman wrote. “This one is no exception, and news broke late last week that Fannie

[Mae] and Freddie [Mac] will introduce 3 percent down payment loan programs. Of course, aggregators such as Wells and Chase will take time to think out their policies and procedures, as will the mortgage insurance companies. And any servicing investors will bid these back. But the move is certainly a nod toward the government wanting to boost mortgage lending, Dow Jones reports. Not only that, but they are also close to [an] agreement that could reduce lender penalties.”

While all of that news may be positive, it will likely be some time before many of those changes are realized. In the meantime, brokers and sellers will need to continue to reach the near-miss borrowers – those who don’t quite meet QM standards – and doing so will require alternative products. Particularly for the self-employed, All Family Lending Income bank statement program is ideally tailored to these circumstances.