Industry NewsMortgage

SoFi says ‘so what?’ to traditional mortgage lending

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In 2014, Dr. Sekuleo Gathers was in the market to buy a home. The New York emergency medicine physician was in a good financial position to buy, but he encountered unexpected obstacles in applying for a mortgage loan.

“The process was arduous and long, and there was a disconnect between my loan officer and the underwriter,” Gathers said. “They were in different states, and it was clear that they did not have a fluid working relationship.”

As a physician, some of Gathers’ income comes from self-employment — which caused further problems when it came to income verification.

“The lender, which markets ‘physician loans,’ asked me to pay $5,000 to have an accountant audit my business financials,” Gathers said.

“I also got a new, waged position during the process, and had two cycles of pay stubs,” Gather said. “The underwriter basically accused me of forgery, seeming surprised that I ‘suddenly’ obtained additional income, and refused to use it in calculating my income-to-debt ratio.”

Dr. Sekuleo Gathers

Dr. Sekuleo Gathers

A friend of Gather’s wife forwarded a newspaper article about a new, nontraditional lending startup that focused on helping people like him get a mortgage loan: Social Finance Inc., commonly known as SoFi.

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Gathers sent SoFi his employment contract and the profit-and-loss statement from his limited liability company, neither of which presented a problem, and 21 days later, he closed on his home in River Edge, New Jersey.

“They have really figured out how to streamline the process and utilize technology to their benefit,” Gathers said. “All of the paperwork was electronic, and even my attorney said at closing, ‘That company was pretty easy to work with.’”

SoFi was founded in 2011 by a group of friends who were classmates at the Stanford University School of Business. After the financial crisis, the friends were struck by how much opportunity there was to improve the financial services industry and focused their attention on one of the greatest areas of financial inequity for consumers: student loan debt.

Aimee Young

Aimee Young

“They were surrounded by a group of classmates who were about to graduate from Stanford with MBA degrees who were getting jobs and paying the same mortgage loan rates as undergrads,” said Aimee Young, who handles the company’s branding, customer acquisition and communications. “They saw a tremendous opportunity to get a different model of lending that took into account not just someone’s credit score, but what their ambitions and career trajectory were going to be going forward.”

The original SoFi model was an alumni-funded program to help college graduates refinance their student loans. But SoFi soon noticed that members of its borrower network were experiencing another financial pain point: obtaining mortgage loans to purchase their first homes.

“We heard that young professionals, particularly in metropolitan areas, were putting off purchasing homes because they were burdened with student loan debt. This inspired the company to invest in reinventing the mortgage process and products.”

So SoFi branched out into mortgages in 2013 and specializes in offering jumbo loans to early-stage professionals with unique financial circumstances like Gathers’. The company offers mortgages for primary, owner-occupied residences and second homes, including single-family homes, condominiums and townhomes.

Mortgage eligibility depends on a number of factors, such as credit scores, income and employment status.

The company’s down payment requirements range from 10 to 50 percent, even on jumbo loans. For a $1 million loan, borrowers who make a 10 percent down payment can expect to pay a 30-year fixed-interest rate of 4.62 to 6.87 percent, or a monthly payment of $5,138 to $6,566. For a 15-year fixed-interest loan, the same buyer would pay an interest rate of 3.87 to 5.99 percent, or a monthly payment of $7,332 to $8,436.

SoFi does not charge origination fees on its mortgage products or require private mortgage insurance on its loans. However, borrowers are still responsible for standard third-party closing costs and other fees like credit report and flood certification. Typical applications close in less than 30 days.

“What we’ve heard is that today’s borrower is focused on looking for a seamless experience, but also something they can do from the convenience of their phone, and not necessarily going into a branch to talk to someone,” Young said. “We wanted to optimize the frictionless interaction that we think modern shoppers want.”

Gathers said when his loan officer had a question about his credit report, the loan officer called him “and rectified the situation in 20 seconds.”

“My loan officer would text me from her cellphone to give me updates,” Gathers said. “This level of service made me feel as though I was her only client.

“They also do something called a virtual appraisal, which speeds up the process by seven days or so, where the appraisal is done based on other properties and price paid, etc., instead of the old way of having someone come out to the house and then having to wait for a report.”

SoFi’s capital came from a mix of sources, including alumni associations, investors, financial institutions and individuals. The company is currently able to issue and refinance mortgages in:

  • Alabama
  • California
  • Colorado
  • Connecticut
  • Delaware
  • Washington, D.C.
  • Florida
  • Georgia
  • Illinois
  • Indiana
  • Maryland
  • Minnesota
  • New Hampshire
  • New Jersey
  • North Carolina
  • North Dakota
  • Pennsylvania
  • Rhode Island
  • Texas
  • Vermont
  • Virginia
  • Washington
  • Wisconsin
  • Wyoming

To date, SoFi has issued more than $3 billion in loans — and counting. Its nontraditional lending model is making headlines for its innovative approach, and recently, its CEO and co-founder, Mike Cagney, was named Innovator of the Year by LendIt.

Eyeing the future and the nontraditional company’s place in a traditional industry, Young said, “There has certainly been a lot of press coverage about new models of lending, but we’re focused on our borrowers and delivering a better experience to them. We aren’t overly focused on what the traditional industry thinks of us.”

Email Amy Swinderman.


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