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Second non QM mortgage lender going out of business in two weeks

3,360 Views | 23 Replies | Last: 3 yr ago by MAS444
itsyourboypookie
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6:42a, 7/8/22
https://www.housingwire.com/articles/sprout-mortgage-to-shutter/?fbclid=IwAR3WUbpdW5Q81vmEWwXDPrXKbGlPBAW5ayJu0NvzBMhBfimK5lG9sZsGRFM&mibextid=vgW32m&fs=e&s=cl

These are mainly high interest rate investor loans that started in the 5's but we refinanced one at 8.5%. They normally make their money on origination points as high as 5% and sell their loans to Wall Street, and apparently wall street has no appetite for them.

This is odd to me. These loans are normally based on DSCR which means the LTV goes down as rates go up, which seems like way better paper for wall street to buy.
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Diggity
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9:46a, 7/8/22
AG
Quote:
Former employees said Pallante held the conference call at 4:30 p.m. and said the lender would be shutting down immediately. He did not offer severance and employees were quickly locked out of their systems, former employees said. Several staffers told HousingWire that Sprout's shut down occurred one day before pay day, and they did not receive their pay checks.
seems like some standup guys.
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jja79
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10:36a, 7/8/22
AG
This is rinse and repeat. Lenders and loan originators that get caught up in refinance waves are an accident waiting to happen. Everyone does refinances when they happen but so many ignore their core business which is purchases.


https://www.nbcdfw.com/news/local/plano-mortgage-lender-lays-off-428-employees-citing-adverse-market-conditions/3002347/

https://www.forbes.com/sites/davidwestenhaver/2022/06/23/mortgage-layoffs-surge-as-rising-rates-crush-lending-activity/?sh=59620eaf6b13

https://therealdeal.com/2022/07/07/bloodbath-mortgage-industry-keeps-cutting-staff/
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SteveBott
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1:02p, 7/8/22
AG
If an investor has to use non-QM aka Subprime loan, he does not qualify for conventional low rates. So they are by definition higher risk loans and most likely to default. Rate does not matter if the investor does not pay his loan.
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Buck Compton
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In reply to SteveBott • 1:18p, 7/8/22
AG
SteveBott said:
If an investor has to use non-QM aka Subprime loan, he does not qualify for conventional low rates. So they are by definition higher risk loans and most likely to default. Rate does not matter if the investor does not pay his loan.
Wouldn't any jumbo loan be considered non-QM? It's not just some homogenous group of loans.
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itsyourboypookie
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In reply to SteveBott • 1:28p, 7/8/22
SteveBott said:
If an investor has to use non-QM aka Subprime loan, he does not qualify for conventional low rates. So they are by definition higher risk loans and most likely to default. Rate does not matter if the investor does not pay his loan.


But only at 60% of appraised value.

Lots of equity if they don't pay
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jja79
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In reply to Buck Compton • 1:29p, 7/8/22
AG
An example is a construction loan with a term greater than 12 months is classified non-QM. Non-QM and subprime are not the same thing.
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SteveBott
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1:35p, 7/8/22
AG
Jumbos still require highly qualified borrowers. These loans usually have some special features like using bank statements as income instead of tax returns etc.
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SteveBott
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In reply to jja79 • 1:37p, 7/8/22
AG
Not sure construction loans are in this discussion. and even those count on strong borrowers who can convert to conventional or jumbo
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jja79
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In reply to SteveBott • 1:43p, 7/8/22
AG
They are in the discussion. They're non-QM but not subprime.
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SteveBott
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In reply to jja79 • 2:03p, 7/8/22
AG
Not really.
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jja79
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In reply to SteveBott • 2:26p, 7/8/22
AG
Are you saying non-QM and subprime are the same?
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SteveBott
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2:30p, 7/8/22
AG
No but OP said the majority of the loans the lender produced were high rate investor loans. Those have nothing to do with construction loans. I highly doubt that lender offered a construction loan and I've never seen a non-QM lender offer a construction loan.

Hey you want to quibble Over what a non QM is have at it. They are not relative to the OP.
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Diggity
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2:50p, 7/8/22
AG
ladies ladies. there's plenty of business for everyone here.
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jja79
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In reply to SteveBott • 3:56p, 7/8/22
AG
I was addressing the post that suggested all jumbo loans are non-QM then gave one example of a type of loan that is non-QM. I wasn't responding to you with my original post Steve. I was saying a construction loan can be in the discussion as a non-QM, not suggesting it was the OP.
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itsyourboypookie
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5:26p, 7/8/22
It's just a non qualified mortgage.

And all no doc low credit score loans I see Max out at 70% of LTV
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Buck Compton
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In reply to jja79 • 5:32p, 7/8/22
AG
jja79 said:
I was addressing the post that suggested all jumbo loans are non-QM then gave one example of a type of loan that is non-QM. I wasn't responding to you with my original post Steve. I was saying a construction loan can be in the discussion as a non-QM, not suggesting it was the OP.
Yeah, my only point was that there's lots of types of loans that can be non-QM, not just "subprime", and that they aren't the same thing.

Reportedly this company's average loans were $700,000 and credit score in the 700s. Doesn't sound necessarily like garbage paper. Sounds like some jumbos and other stuff. Maybe some bad loans too, but not necessarily on the surface.
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Diggity
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In reply to Buck Compton • 5:34p, 7/8/22
AG
Not sure how accurate the OPs summary of the company was, but high credit folks don't generally agree to pay 5% origination fees.
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Martin Q. Blank
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In reply to Diggity • 5:35p, 7/8/22
Diggity said:
ladies ladies. there's plenty of business for everyone here.
Not in today's market.
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Buck Compton
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In reply to Diggity • 5:44p, 7/8/22
AG
Diggity said:
Not sure how accurate the OPs summary of the company was, but high credit folks don't generally agree to pay 5% origination fees.
I'm not sure on OP, but was reading a second article as well where I got my info. I have no inside info and I'm sure there's more to it.

https://nationalmortgageprofessional.com/news/sprout-mortgage-faucet-just-got-turned
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Diggity
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In reply to Buck Compton • 5:48p, 7/8/22
AG
Who knows.

That "anonymous source" also claimed things were going great at the company, and it's later revealed that they had already laid off about a quarter of their workforce in the past few months. Doesn't seem to be a reliable witness.
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Jay@AgsReward.com
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10:09a, 7/10/22
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AG
These guys do this every cycle. When the margin goes from lets say 104 on a 150mm slug of loans down to 101.500 they simply close the doors because it is not profitable enough with the fixed costs they built up during the good times. The same guys will pop back up in a year or two when the margins are fat enough. Then rinse and repeat. Happens every cycle and you will see some of the same names in a few years.
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itsyourboypookie
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In reply to Diggity • 7:12a, 7/11/22
Diggity said:
Not sure how accurate the OPs summary of the company was, but high credit folks don't generally agree to pay 5% origination fees.


Yes they do.

As long as the DSCR fits their needs, they want their capital back out to do the next deal. These loans are easy to get and you make money when you buy as a real estate investor. The tenant/ IRS pays those points
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MAS444
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9:13a, 7/12/22
AG
One of my office tenants is a "hard money lender." I wonder how the current environment is affecting them...
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