RTC Mortgage Blog

A New Way of Underwriting?

May 5th, 2011 2:59 PM by Richard T. Cirelli

ASSET DEPLETION: A New Way of Underwriting?


Finally, there’s some good news amid the tighter underwriting guidelines that we’ve been given over the past few years. There’s a new method of underwriting among at least two “portfolio” lenders that should open the door for buyers of some higher-priced properties. It’s called “Asset Depletion” or “Asset Utilization” and it can help homebuyers that have lots of liquid assets but are unable to provide income tax returns that show enough income to qualify.


I’ve seen it advertised by several lenders and brokers lately but do you know how it works? Here’s how…


Let’s say that the Borrower has insufficient income reported on his/her tax returns to qualify for a loan but has $2.5 Million in cash and investments. Let’s also say that that borrower is 60 years old.


One lender says that in addition to the income that is used based on their tax returns, we can also take the Assets of $2.5 million and divide it by 25 years (the difference between his current age and 85). That amounts to $100,000 per year. In other words, if the borrower depleted his $2.5 Million assets over the next 25 years he would have $100,000 per year in income to help qualify for the mortgage he needs.


Another lender says that we can simply apply a 4% rate of return to client’s assets. In the example above, that also equates to $100,000 per year.


It’s important to note that this underwriting method does not apply to standard Fannie Mae, Freddie Mac or FHA loans. It is strictly for the couple of lenders that offer it. Additionally, if the borrower is using any of the assets for the down payment we have to subtract that amount.


There’s not enough space here to go over all the possibilities so,

Call me for details if you have a client that might benefit from this new type of underwriting.


Update to Last Week’s Article about QRM (Qualified Residential Mortgages:


In last week’s article I talked about how the Dodd-Frank Financial Reform Bill requires Congress to define a Qualified Residential Mortgage (QRM) and how lenders that make Non-Qualified mortgage will have to set aside 5% of every loan amount in reserve against future defaults. The definition of a QRM is expected to require at least a 20% down payment on purchases and 25% on refinances.


Well, perhaps Barney Frank, last year’s Chairman of the House Financial Services Committee, read my article because now he’s saying “mortgages with lower down payments and solid underwriting standards should be able to meet the QRM test”. If he sticks to his statement and is successful at persuading Congress to change their views, we could still have 90% loans and first-time homebuyer loans that are so desperately needed to help the housing recovery (instead of further preventing it).


To read last week’s article, click here: http://www.rtcmortgage.com/Watch%20Out%20For%20QRM


Mortgage Rates This Week…………..


Rates continued to improve a little more this week based on comments by the Fed last week and weaker employment numbers today. We are now at the low point for the year and not too far off of last November’s all-time low.


It’s a good time to buy or refinance!



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Posted by Richard T. Cirelli on May 5th, 2011 2:59 PM



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