Starting with the end in mind. (Broker Business).

SUCCESSFUL MORTGAGE BROKERS HAVE A wholesale lender in mind when taking an application--especially if the borrower doesn't qualify for a prime loan. "I tell my loan officers not just to have a plan A and B, but to have a plan C as well," says Ginny Ferguson, co-owner and broker of Heritage Valley

But for the most part, brokers are finding that low rates and accommodative lenders are making difficult deals "a lot easier today," says Sandy Fischer, president and chief executive officer of Mortgage Discounters, Fairless Hills, Pennsylvania. For instance, he recalls that in the past, prospective homebuyers couldn't borrow without documenting their income. "But now people with no income [verification] are buying $300,000 to $600,000 homes," Fischer says. He adds, "There's not that much of a premium" on the rates for no-income-verification mortgages.

Low down payments also aren't the problem they once were for originators. Many of Ferguson's clients are moving into the high-cost San Francisco area. They have the income to support a jumbo loan, but can offer only a 5 or 10 percent down payment.

In these cases, Ferguson often combines a first mortgage with a smaller second mortgage. Higher debt-to-income ratios then are allowed on the first mortgage, since the secondary financing makes it less risky than using a larger first mortgage with a low down payment. Purchasers also avoid mortgage insurance payments with this arrangement.

Alt-A and portfolio

Ferguson also says the automated underwriting systems used by Fannie Mae and Freddie Mac are putting less emphasis on borrower reserves. Homebuyers with a 5 percent down payment in the past were required to have three months of reserves. Today that wouldn't be the case, although Ferguson adds that Desktop Underwriter[R] and Loan Prospector[R] are "a little touchy" about approving lowdown-payment loans without reserves on condominiums or non-owner-occupied properties.

However, some difficult files can go through Fannie Mae's Expanded Approval[TM] program, Ferguson explains. Expanded Approval is designed to help borrowers whose down payments or credit histories don't qualify them for prime financing.

Such A-minus programs give brokers a range of options for helping consumers. Depending on the borrower's risk profile, the interest rates on Expanded Approval loans in late March were 0.875 to 1.635 percent higher than A loans, says Ferguson.

Yet underwriting gets tougher for borrowers who are judged as being riskier. An Expanded Approval loan can't be coupled with a second mortgage, for instance. So borrowers with lower credit scores need to come up with a larger down payment, Ferguson explains, If that's not an option, she'll suggest using a portfolio lender. Oakland, California- based World Savings; Downey, California-based Downey Savings & Loan; and Seattle-based Washington Mutual are her preferences for portfolio products.

A subprime loan would be the final possibility offered by Ferguson. Usually a subprime borrower obtains an adjustable-rate mortgage with set payments for two years. Ferguson's strategy is for the borrowers to "get out before the rate moves up" by cleaning up their credit and refinancing.

Fischer also uses World Savings for portfolio loans, and takes his A paper to any of several national wholesale lenders.

And he turns to Freddie Mac's alternative-A programs when an income property buyer wants to put just 10 percent down. Fischer notes that 30 percent down payments used to be mandatory on investment real estate. Alternatively, he may put the investor into a 20 percent second mortgage with Miamisburg, Ohio-based National City Mortgage Co.

Know your underwriter

Understanding how a wholesale lender works is important on hard-to-approve deals, says Ferguson. Assembling a loan file the way the lender wants it helps, she notes. Additionally, the secondary market is aware of delinquency ratio variances among underwriters. Working with a lender whose regional staff is trusted by mortgage investors can help a broker gain an approval.

Government-insured loans aren't that important for Fischer or Ferguson. Heritage Valley Mortgage received its Federal Housing Administration (FHA) approval in 1986, Ferguson says. But she dropped it three years ago, after reviewing her FHA volume against the quality control and audit costs.

Fischer originates FHA business from the Philadelphia central city area. But he notes that with the many attractive conventional programs available, he often won't recommend a Department of Veterans Affairs (VA) loan to a Navy pilot in Pensacola, Florida. Mortgage Discounters has nine lending offices in four states, says Fischer.

Offering a wide range of products means "we don't lose loans to the competition," Fischer says. But he adds, "If I originate it, I have somewhere to place it." Fischer says, "I'm not in the business of originating loans--I'm in the business of closing loans."

Howard Schneider is a freelance writer based in Ojai, California. He can be reached at howard@mmnl.net.