No-doc loans show signs of growth under CDFI exemption

Abstract

The volume of privately-securitized no-doc loans made by community development financial institutions is modest, but is growing along with their overall lending activity. Roughly $1.2 billion of CDFI loans have been included in new private-label residential mortgage-backed securities year-to-date, according to a new Kroll Bond Ratings Agency published Tuesday. "Despite the potential risks posed by no-doc lending, KBRA believes that given prudent guidelines and originators acting in good faith based on soundly developed underwriting, some lenders may be able to strike a balance between expanding the availability of housing credit while avoiding harm to the borrowers such loans seek to help," analysts said in the report. At least five newly-rated transactions have included "No ratio" loans since 2021. A consumer-purpose loan transaction with 100% no doc loans went to market in November 2021. CDFI loans began showing up in the private securitization market starting in 2019, according to the report's authors, Edward DeVito, Ashish Sharda and Jack Kahan. Lenders such as Quontic Bank have been funding no-doc loans under the ATR exemption since at least 2020.Loans with limited or nonexistent income information went seriously delinquent at a rate 1.1 to 5.4 times higher than full-doc loans during the Great Recession's housing crash.

No-doc loans show signs of growth under CDFI exemption

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No-doc loans show signs of growth under CDFI exemption

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