An Irvine mortgage company that pulled the plug on its higher-risk loans a year before the Great Recession has launched an array of rule-bending home loans nationwide — a sign of a thaw in tightfisted lending standards in place since the housing crash.
Impac Mortgage Holdings Inc. is writing loans that fall outside certain limits set by home-finance giants Fannie Mae and Freddie Mac, as well as Consumer Financial Protection Bureau rules that discourage the reckless lending that fed the market meltdown and the recession.
Impac may even have the regulators' blessings.
The consumer bureau's director, Richard Cordray, has told lenders they have "little to fear" in exceeding his agency's limits if they observe the central requirement imposed after the fiasco — determining that borrowers are able to pay back their loans.
One of Impac's four new programs, for instance, allows ordinary borrowers to devote up to 50% of their income to cover housing and other debts instead of the usual 43% cap.
Others are aimed at people who can't get conventional loans for special reasons, such as investors who own multiple homes, foreigners buying mansions with jumbo loans of up to $3 million and entrepreneurs with complicated finances.
"The pent-up demand for loans like this is tremendous," said Impac President William S. Ashmore, who noted that the company is the first to offer a wide array of such loans nationwide.
Most of the loans will be made through brokers, and Ashmore said hundreds of mortgage brokers have signed up to provide them.
Consumer advocates expressed support for loans to worthy borrowers who are frustrated by stingy lenders. But they said Impac's new loan programs should be watched closely because eased mortgage standards evolved during the housing boom into mass lending to people who clearly could not repay their debts.
Higher-risk loans "fueled the mortgage and foreclosure crisis," said Kevin Stein of the California Reinvestment Coalition.
Impac, which is a licensed lender in 42 states, opened for business in 1995 as California housing stabilized after a previous collapse in prices. Ashmore said its target customers — small-business owners — had decent credit but tricky financial credentials because they had no paychecks to demonstrate earnings and their tax filings were complicated.
Its loans fell between prime and subprime in the category known as Alt-A, which sometimes stretched the rules on allowable debt loads and down payments as well as documentation of income.
Impac cut back on lending as the easy-money era peaked in 2006, when many lenders seemed to regard documentation as more nuisance than duty. It quit making loans altogether as home lending melted down in 2007, then in 2010 resumed providing mortgages backed by Fannie Mae and Freddie Mac.
Impac calls its new loans AltQM because they exceed consumer bureau limits for so-called qualified mortgages. The QMs, as they are known, are designed to be safe and sound on their face and confer certain advantages on the lenders who make them — benefits that Impac is passing up by going outside the rules.
Impac, for instance, will retain partial ownership of loans it sells, something not required of qualified mortgage lenders. Ashmore said Impac retained residual interests in past loans and is comfortable doing so again.
Qualified mortgage lenders also enjoy legal protection against lawsuits claiming that borrowers were stuck with unaffordable loans. Ashmore said he can live without that shield because he makes sure his borrowers understand their loans and moves fast to modify the mortgages if they run into unforeseeable problems.
"The bottom line is this: Work with borrowers," he said.
Impac said it would lend only to borrowers with good credit scores of at least 680. But it will be flexible in other regards, using bank statements, for example, instead of pay stubs and tax returns to verify whether small-business owners can repay loans.
The mortgages are called hybrid loans; the rates are fixed for the first five, seven or 10 years before becoming variable. Home buyers and homeowners seeking refinancing must have at least 20% down payments — and more than that to reduce the interest rate. Investors who won't be living in the homes usually must plunk down 30%.
Interest rates typically are 5% to 8%, depending on the perceived risk, such as credit scores and the amount of down payment, company officials said. That's well above current prime rates but lower than the double digits charged by new subprime lenders such as Citadel Servicing Corp. of Orange County.
Impac is among several lenders which recently announced plans to provide outside-the-box mortgages, said San Mateo loan broker Michelle Velez, president of the California Assn. of Mortgage Professionals.
The problem for many borrowers, Velez said, is that these unconventional loans are "extremely expensive" compared with 30-year loans with rates fixed at less than 4.5% from Fannie and Freddie.
Impac said it has an edge in the fledgling business because it has lined up a deep-pocketed ally to take the loans off its books. The mortgages are to be purchased as investments by a partner Ashmore described as a "unique financial organization, global in reach," which Impac won't yet identify.
The eventual plan is to bundle the mortgages into securities issued without government backing — a rarity since the meltdown.
Investors may not be ready for that any time soon, some experts said.
A healthy market for new bonds backed by non-QM loans is "probably two or three years away," said Harrison Choi, a mortgage securities specialist at Los Angeles investment giant TCW Group.
One reason, he said, is that subprime securities from the housing boom, which sell at a sharp discount to their original value, have experienced fewer losses as housing recovers and represent better options for bond investors.
Experts also questioned how the loans will be regarded by the consumer bureau, which declined to comment on them, and how their inherent risks can be controlled.
"The history of the financial crisis was the expansion of these niche loans far beyond the small group of borrowers for whom they were suitable, until they were exploding time bombs for most people who got them," said Michael Calhoun, president of the Center for Responsible Lending, an advocacy group.
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