As we continue to distance ourselves from the advent of the real estate downturn, residential mortgage loan lenders seem to be increasingly willing to explore ways to loan money outside of the “qualified mortgage” arena. For instance, as the author pointed out in a recent N.Y. Timesarticle, lenders are becoming more likely to make jumbo loans (also known as nonconforming loans) to a person who otherwise cannot meet the predominantly rigid underwriting guidelines currently in place.

Since the economic downturn, borrowers generally have had to meet strict requirements in order to obtain a jumbo loan. For example, borrowers have had to have a certain minimum credit score, and self-employed borrowers have been required to provide at least two years of tax returns. For some, these guidelines are onerous and their ability to meet them may not accurately reflect their ability to repay a mortgage. A self-employed borrower who, for example, has just begun a business, may not be able to document two years of income related to the business. However, there appears to be an easing ofunderwriting standards in the jumbo loan market. Jordan Roth, a mortgage specialist at the GuardHill Financial Corporation explains that lenders are just “having to get a little more creative.” If that new business owner can show that she has previously been successful in a similar business, then lenders may be more willing to give her a jumbo mortgage than in the recent past.

The increased demand by those who cannot meet traditional underwriting requirements is spurring new lending businesses. W.J. Bradely Mortgage Capital, a Colorado lender licensed in 37 states, plans to initiate a program that will target borrowers who are “well-qualified”, but still cannot obtain a jumbo loan. But on the “supply” side, private capital to fund loans or non-Qualified Mortgages is scarce. As Michael Klime, the chief operating officer of W.J. Bradley warns, “As you go out the agency guidelines, you’re going to have whole new tiers of borrowers who don’t have access to credit if we don’t figure out how to get private capital back into play.”

But in any case, with Jumbo loans becoming increasingly easier to obtain, lenders have to remain aware of the painful lessons learned in the aftermath of the mortgage market meltdown. From what we have observed, there is a somewhat difficult-to-define line between creative but responsible lending, and the high risk/doomed to failure products so prevalent before the mortgage crisis. Increased loan volume has historically been a major temptation to further blur or cross that line. The key with these lending practices is to remain cautious and always ensure that there is a real ability of the borrower to repay the loan.