Citadel Servicing Corporation (CSC) has announced the launch of a new three-month bank statement mortgage lending program, a program it says is purpose built for borrowers in today’s uncertain environment. It believes it is particularly helpful for self-employed borrowers who may have been adversely impacted during the early stages of the COVID-19 pandemic.

Keith Lind, executive chairman and president of CSC, spoke to MPA about how the new program can serve a market still recovering from the trauma of the spring lockdowns. In an economy where the past 24 months might not be able to tell much more about a borrower’s financial health than the past three, Lind says a program like this serves those with a need for a more focused underwriting process. He emphasized that the rollout of this program reflects a renewed focus at CSC after its acquisition by global investment firm HPS Investment Partners in February.

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“After we stepped into the company on Valentine’s Day, COVID turned into a time for us to dedicate our attention on making advancements,” Lind said. “We had a lot of improvements to make at CSC and those five months gave us the time to diversify our capital partners going forward. When I stepped in, we had three warehouses: they were short-term lending facilities with three small regional banks, totaling around $200 million in warehouse capacity. Now, by the end of the year, we are going to be over $900 million with $200-plus million of that having a non market-to-market capacity, which is crucial in such volatile times.

“This product fits our understanding of where we are currently comfortable with credit. It fits into all of our channels, whether wholesale, correspondent, or retail. It is another product offering where our borrowers are going to have a chance, within our tight credit guidelines, to obtain a loan from Citadel.”

Tighter guidelines are a feature of the product, informed by a strong performance in CSC’s past one-month bank statement offering. The three-month program features tighter FICO bands, tighter LTV bands, and tighter reserve requirements. Lind believes it is a more conservative approach for a lender like CSC to look at the weighted average of the last three months, rather than an average of the last 12 or 24 months, when that borrower’s whole financial situation could have been turned upside-down last spring.

A three-month program, Lind said, will serve borrowers looking for a faster underwrite who boast an outstanding credit history, putting them squarely within the program’s tighter credit box. He stressed that 12- and 24-month statements could include disqualifying periods brought on as a result of the pandemic, and no fault of the borrower’s. The three-month program allows a much clearer picture of how these borrowers have done in a post-lockdown economy.

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In addition, he stressed that the mortgage market, like the wider economy, has been fundamentally changed by recent events. He said that this program is suited to an era of recovery, uncertainty, and potential shocks down the road.

“I think if you asked anyone pre-COVID how non-QM would have done during a pandemic, with lots of self-employed or business borrowers, they would have been concerned,” Lind said. “But it is a testament to Citadel’s credit underwriting that the performance has been pretty outstanding. People have realized that when you are putting down 30-35% equity on a property, people are going to repay their lien. In June, we did a small securitization of about $51 million of loans that were originated pre-COVID shutdown and the performance has been outstanding. It is around 95% current and we gave forbearance to one borrower. That was a low 60% LTV pool, which is what this three-month bank statement product is going to look like. It is a lower-LTV, higher-FICO product that can perform, and will perform, in any potential future downturns.”