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Millions Of Borrowers Now Have Blemished Credit, How Can You Still Serve Them?

Between Q3 and Q4, the US economy went through the biggest single drop in real GDP in history, followed by the biggest single rise in real GDP in history. Amid the chaos and confusion of those months, the sheer scale of that economic earthquake has sometimes been lost. While estimates vary, that initial drop equated to as many as 40 million jobs lost due to lockdown orders and the rapid spread of COVID-19. Many of those jobs have been subsequently clawed back but sudden, steep unemployment at a time of national crisis has left millions of Americans with scars on their psyches, and blemishes on their credit reports.

Originators now must work in an economy where credit blemishes are far more common than before. Laid off workers who might have had solid incomes and assets, had to draw down on credit to make it through the roughest early months. Borrowers who would have qualified for agency loans pre-pandemic, even those who have gotten their income back, are being shut out by these blemishes. Originators need to use different tools to secure loans for these borrowers. The solution may lie in non-QM.