Deephaven Mortgage, a Charlotte-based lender focused on nonqualified mortgages (non-QM), has recently expanded its home equity offerings with a new closed-end second-lien product and the introduction of a home equity line of credit (HELOC).
“Today’s second-lien market presents a significant opportunity,” said Tom Davis, Deephaven’s chief sales officer, in an interview during the Mortgage Bankers Association (MBA)’s Annual Convention & Expo in Denver this week.
According to Davis, rising home prices have led homeowners to tap into their equity for purposes such as debt consolidation, home renovation and student loan repayment. Investors, meanwhile, are leveraging the option to expand their property portfolios.
The Deephaven HELOC has a maximum loan size of $400,000 and a max loan-to-value (LTV) ratio of 85%. Its closed-end second-lien product goes up to $500,000 with an 80% LTV cap. The minimum FICO score to qualify is 680. Deephaven works in the wholesale and correspondent channels, but it will start the HELOC offering via its broker partners.
Some lenders extend 90% LTV caps on similar products, but Davis calls this a “marketing play,” adding that Deephaven’s typical production falls between the high-60% and low-70% LTV range. On average, its borrowers’ FICO scores are 740 and debt-to-income ratios are 30%.
Regarding the costs to borrowers, rates for these products range from 8% to 9%, depending on factors like loan type, LTV and credit score. For loan amounts below $400,000 on closed-end seconds, Deephaven requires only an automated valuation model (AVM) instead of a full appraisal, and the HELOC can be processed in as little as eight days.
Deephaven believes it’s ahead of competitors on this offering because it offers full-documentation and bank-statement options. While some lenders experiment with closed-end second liens and HELOCs, Davis emphasized that Deephaven is fully committed. According to him, many lenders opt out due to the costs involved in smaller loans, preferring higher-balance options instead.
Regarding secondary market appetite for these products, Davis said there’s interest, particularly for closed-end seconds, from insurance companies and pension funds.
“We have a wide, diversified investor set, and there’s a ton of appetite from investors for those products. There’s more demand than supply,” he added.
As home equity products are usually seen as competitors to cash-out refinances, Davis said that borrowers are less likely to refinance out of their existing sub-4% mortgages taken out during the COVID-19 pandemic. In terms of product set, he sees more lenders jumping into the non-QM space.
“They have no other choice. There’s no refinance business or very limited, so they have to offer all mortgage products outside of the agencies to be competitive,” Davis said, adding that for lenders with strong product knowledge, monthly production is at record levels.
