In this episode, David Lykken interviews James Hooper from Quontic Bank, a CDFI that has fully embraced Angel AI to streamline its lending operations. James discusses how adopting Angel AI has significantly reduced costs, improved efficiency, and allowed loan officers to focus more on relationship-building while automating routine tasks. Quontic Bank, known for serving underserved communities, leverages innovative products like crypto-backed loans and a unique P&L product to help non-traditional borrowers. The conversation emphasizes the importance of adopting new technologies to stay competitive in the mortgage industry and highlights Quontic’s success in reducing operational costs by over $1.5 million in 18 months.
[David] Listeners, we’re in for a real treat today. I’ve got James Hooper joining us, and he’s going to give us insights into some new lending that a bank’s doing and I want to start out right by saying they are users of Angel AI, and I can’t wait to hear about that part of the story. The reason he’s here is how they made the decision to drop all other tech stacks and just go all in on Angel AI. That’s part of the story we’re talking about, but we’re also talking, they are a CDFI institution. We’re going to learn about that, so fasten your seatbelt, let’s get into it. James, great to have you on the podcast.
[James] David welcome. It’s an honor. I’ve been listening to the podcast for some period of time. I was a little jealous. I’ve never got to be on it, but now here I am here. We greatly appreciate you guys having us on for sure.
[David] You guys got a great story and I think it’s a story that needs to be told from several aspects. First of all, the CDFI, I want to hear more about that, the type of lending you’re doing, and then also, you’re one of the first institutions that have gone all in an increasing number are now since you’ve made the move that have gone over to Angel AI and a lot of people are going to want to know about that, we’re going to hear what was the rationale behind that because everyone’s struggling with the cost to originate, you know about that as well as anybody. It’s unsustainable.
[James] Yeah. Look, if you look at the cost of originate, I think the MBA just came out. Luckily, some margins are coming back and some other stuff but the cost of originate, the MBA came out with a forecast. It was $8,000-$11,000 per closed loan, given the institution of the MBA or the IMB but that’s just…
[David] Unsustainable, as you say, yeah, now, one report I saw was, I’m not sure which one it is, but it, one is that, was it $12,000? and so hopefully with the increase in that it’s crazy. Whatever the number is, it’s too high and what the Angel AI, we’re going to get into that. But first of all, I want our listeners to get to know you a little bit, James, you’re a dynamic guy, when we had our prep call, I really enjoyed you’re so engaging. Share with our audience a little bit about yourself, your background.
[James] Yeah, that was a good intro call. I’ve been in the business I may not look 46 years old but, I’ve been in the business since I was 19 years old. Interesting dynamic, I got into this business, my ex father-in-Law, who’s still in the mortgage business by the way. He gave me a job and your listeners people watching online, they’ll love this, right? He gave me a phone book and paid me $5.00 an hour and said, have fun, right? and I was calling borrowers just to get them to refinance or purchase a home out of the phone book, which we don’t even have a phone book today. I know that may not seem that long ago, but that was 26 years ago and time flies. But my first loan that I did, I actually misquoted the rate sheet, right? So I actually cost him $17,000 on that deal. That was right before I got married to his daughter. And the flag was up for him. But anyway, then I went into the wholesale space, moved from the South over to Phoenix where I live today. And at an early age, I worked for a large banking institution and got in engaged in the broker world and at an early age of 22, I was a Senior Vice President at US Bank. I used to go on calls with my Account Executives and they were like, Oh, you brought your grandson to work today.
[David] So, you just love that. Yeah.
[James] Yeah. So back, back in that day, there wasn’t a lot of young talent coming into the business, right? Today we see it more often as people are coming into it, but it was very rare to see young faces in the mortgage business at that day. I welcome that in my career, I hire people from a sales perspective all day every day that come from no mortgage background with the vision and the attitude to be to do that. It’s great to see all that new fresh blood coming into it, but when I got into it, it was not common, right? which was great, but I got introduced to a lot of different things with a lot of different institutions over my career and being at the C-Level table at an early part of my career, I got to see various different types of things and then being on the technology side of the house, I was always innovative from a standpoint of, Hey, why don’t we do it this way? Why don’t we do it that way? or why don’t we just think outside the box? and a lot of people, we’ve been in the mortgage business. We just, we do things the same way, which is why our cost to originate is still the same, right? Although we got regulatory compliance and all that other stuff, but we’ve learned how to maneuver some of those waters with technology and that’s my background. I’m very passionate about technology. Whenever I got to meet Pavan, I’ve known Pavan for a period of time and then the things that he’s just been doing with Angel AI, it’ll really blows your mind. Because it’s almost like it’s unreal, right? Yeah. You’re like, you can’t really do that. You log into Angel AI and it’s oh, it actually can do that. And that’s probably been as a user of the platform, which we love, it is just the mindset of the loan officer, the originator, they’re so used to having someone else do this for them or saying, Hey, just have my LOA do it. Oh, we’ll let my processor do it. But the reality is you can just ask the system to do it and it just goes out and does it for you, it’s not that they don’t think that it can do it. It’s just like they don’t, they’re just like, I don’t think that can do that and then they learn that it can. I’ll give you a real-life example. One of my loan officers the other day called me and she was like, Hey, I need to get a CD out on this file. I’m like, ask Angel AI. And she was like, Oh, I forgot about that. I said, just go ask Angel AI said, it’ll get done. CD went out within 20 minutes, it was as easy.
[David] it is so mind boggling and blowing what Angel AI is doing to re imagine the whole lending process and cut costs. That’s the best part of it, but actually the best part cost reduction is a benefit of it. The real benefit is what it’s doing because it’s giving loan officers a tool where they can do what their best at what they’re really hired to do in build relationships and let the system take care of all the busy work of it. I love it.
[James] Yeah. Back on that, when I took over production here at Quontic, we struggle, although we’re a bank, we have a different regulator, which is the OCC. We have some different process flows that we have to go through. But one of the things that we were hypersensitive and focused on was cost reduction, right? and our cost to originate was substantially high and I looked at every facet of our business, whether that was contract with vendors, whether that was different things or process flows. We really dissected our process flow and we’ve been able to cut over $1.5 million in cost over the last 18 months.
[David] Wow. How long?
[James] In 18 months that we’ve been able to cost that and we didn’t reduce a single FTE. It wasn’t that we were fat from a production standpoint or people standpoint. Because, we run pretty lean and mean on there, but what we did is we were able to make those people do things, more of those things. We call it widgets, right? There, if an underwriter could underwrite two files, now they can underwrite six files, right? If they can, do things. That was what we were hypersensitive on in addition to other things of doing redundancy within the process flow too. And that’s one thing that Angel AI has been able to help us do at the high level. Yes, it helps the originator does a lot too but from an operator at the top of the house, it’s really been able for us to do, I won’t get into the whole, things that it can do with FHA case file numbers ordering in my, all of those things that you have to have a body to do, now you have a system that will do that actually do it. That’s been one of the biggest things and, we are a CDFI. One of the things that’s a,
[David] What is a CDFI? Let’s go there for a minute.
[James] We all have acronyms in this business, LTV, DTI, you name it, OCC. So CDFI. So we are the only digital bank in the country that is designated as a CDFI. A lot of people are like, what is a digital bank? because that’s not common.
[David] So, is it a commercial digital financial institution? Is that what that stands for?
[James] No, but that’s a good one. I do like that.
[David] I’m trying to what is CDFI? What are the actual letters, initials stand for?
[James] The consumer CB consumer division of financial institution, right?
[David] Consumer division of financial, okay. Yeah.
[James] CDFI. With that being said sometimes I have to think about it because I say CDFI so much. But one of the things of being a CDFI is, not everyone can become a CDFI, right? It’s very hard to become it. You gotta qualify on an annual basis. You don’t see lending, you don’t see Rocket Mortgage, UWM, some of the bigger lenders, some of the folks out in the marketplace, because 60% of your loans, both in units and volume on an annualized basis has to go to a set, a population, a group, you have to create your mission. You have to create a board for that mission, our mission here is African American, Hispanic, Latinos, low to moderate income and investment track opportunities. Those are the four population or four groups of people that we lend to and so what we do is 60% both units and volume have to go to that population of groups of folks in order for us to qualify that. The benefits of the CDFI are, you get some reduced documentation, it’s really there to help the underserved to get into a marketplace because, you have so many borrowers today that have reserves, they have the collateral, they have those things necessary, but they don’t have it on paper, right? income wise. That’s really high level what the CDFI Does. We’re very proud of it. It’s not only, like I mentioned, you’ve got to qualify for that on an annual basis. Just because we have it today in 2024 doesn’t mean we’ll have it in 2025. So that’s the reason why it’s very hard to get and a lot of institutions can’t do it because you look at the population of loans out in the marketplace are conventional type loans. Conventional type loans are, those are not your Hispanic, Latino, African American type borrowers. Although a lot of those borrowers are in that population, but the mass there are make-up of a different demographic group. When you originate those loans, it disqualifies you out of the gate. We’re very proud of it. We’re very proud of the digital bank side of it being the only one that’s a digital bank that has it.
[David] For those that do not understand what a digital bank is, explain what you mean by that.
[James] We don’t have brick and mortar. Everything that we do is online.
[David] 100%, you have a corporate office, I’m assuming somewhere.
[James] Yeah, we got a corporate office. We’re based out of New York. We don’t have bank branches, right? A lot of the chases and the Bank of America’s, The Wells Fargo’s, they’re actually reducing their bank branch because they’re storefront as well as more consumers go online. The co-founders of the bank were very innovative on that front from that, but one of the cool features that we have on the bank side just because I’ll plug the bank is Steve Schnall one of our one of the co-founders of the bank unfortunately he’s no longer with us, but he created what’s called the ring. What it is, you can pay with a ring, you walk into gas station, Walgreens, you name it.
You just put your ring up there and it’s a debit card. For us gentlemen, it’s, you get different colors so it can act as your wedding ring and your debit card. Pretty cool on that front and the other big thing that we do not only from the banking side, but also on the lending side is crypto is a currency that is becoming more and more common today and acceptable. We allow that to come into the bank and we also lend to folks that have crypto as an asset and use that as a form of income to qualify for home loans.
[David] That’s really good.
[James] Yeah. If you’re running around with some bitcoins which I hope that we are or whatever, and we take 40 percent of that value and we divide that by 60 months and we’re able to lend on that from a banking institution.
[David] That’s wonderful. Yeah. I’d love to get into that. We may have to have you back talking more about that, what are some of the other things that sent Quontic Bank different from other banks?
[James] In addition to the CDFI that we said, that we’re really the bank is there to facilitate the mortgage division, right? working for a banking institution for the FDIC as an originator, you’re licensed in all 50 states, right? that’s one of the benefits, the main driver of the bank is to facilitate the mortgage side of the house and on the mortgage side of the house. The CDFI compliments us as well, but that FDIC license from a loan officer standpoint it really helps us from a recruiting standpoint a cost savings standpoint because if you’re an IMB and you’re listening to this and you got 3,000 loan officers you have a whole group just managing that, right? that’s a huge benefit. But the other benefit for the bank and the mortgage, the marriage there is the portfolio products, right? Which is our non QM products. The bank is a balance sheet holder of those products for us.
[David] So, you are a large non-QM lender then?
[James] 90, I would say today, 90% of everything that we do is a bank sheet portfolio product.
[David] That’s surprising with the regulators. how are the regulators handling that?
[James] We’ve always done safe and sound lending, right? I would say we’re more scrutinized than your typical non QM lenders out in the marketplace. The regulators are happy with the product.
[David] That’s because the mission of serving the underserved is.
[James] Yeah. They’re happy with the performance. What a lot of people don’t understand is this is not 05, 06, 07 or 08 type of product, you’re not doing an 80, 21 day out of BK with a 580 FICO score. Trust me, I used to sell that product back in the day because that was a sellable product. Most borrowers today, if you look at the makeup of a borrower, and there’s a lot of the data now that has become more prevalent on the 9Kilom side, the average FICO score is 747. The average LTV is 72%. and the default rate is less than what you would find on a QM loan. These borrowers have skin in the game and it’s sound lending, and we’re not an institution that likes a high LTV or the max LTV we do here at Quontic on the first lane is 80%. The max on the second lane is 85, right? it’s really safe and sound lending from that standpoint.
[David] What do you think is going to be going on or the future of non QM lending over the next 12 to 24 months? What’s your perspective on it?
[James] It’s funny. I get that question asked every day, right? I think as the gig economy workers, there’s data out there. 16% of all non QM borrowers that are eligible to work in the marketplace today are self employed borrowers, right? when you look at the pie chart of the non-QM market, if it’s 100%, 8 out of 10 of those borrowers are bank statement loans. 99% of those are self employed borrowers, right? I see the future. It’s doubled from 2021. It’s doubled year over year, right? From that standpoint, from a production standpoint. We anticipate that will continue to grow as more and more borrowers leave corporate America and say, Hey, I want the American dream. I want to be self employed. and there’s more borrowers today. Just look at our economy that have a second job that, with QM rules, you can’t potentially use that income to go buy a home loan because you don’t have two years of employment. But with non-QM, here at Quontic, we’ll take that, right? not have that history. I see the market continuing to double as more and more borrowers out in the marketplace. Now, we’ve seen substantial growth just due to, what is it? 9 out of 10 loans are sitting underneath a four-handle interest rate. Your typical agency borrowers have not been able to refinance. So non-QM has exploded over the last two years, just in the sense of just those borrowers and loan officers getting used to doing those loans. I will tell you in 2020, we’ll go back before the pandemic, 2019, you couldn’t get a loan officer to do a bank statement you, they’re, ah, I don’t want to go through the hassle of that. I don’t even want to talk about it. I’m going to just do this agency loan, now I talk to brokers all across the country and bankers as well. Some of our biggest customers are bankers, by the way. IMBs all of them are doing non-QM loans. Because they have to.
[David] Not only that, it’s the margin that’s in that product. Number one, but there’s a demand or growing demand. They’re going to miss the segment of the comp population if you’re not doing it.
[James] Yeah. The demand and the myth. You look at the bank statement loans, and then you look at the investors, right? The DSCR loan, which is the debt service coverage ratio loan. That’s the second biggest population of non-QM loans. When you look at that, there’s been a lot of investor concentration in the marketplace. The good originators had to go out and do those loans and they’re not hard. Our average turn time from app to funding on average is 22 days. It’s not the old myth of, holy crap. It takes longer.
[David] It’s a lot more work. Blah, blah, blah. Yeah. Yeah. It goes into the system. Coming back to Angel AI. Does Angel AI handle the non-QM pretty well?
[James] Angel AI, Pavan and his team over there at Celligence, they’ve done a phenomenal job in the sense of it reading guidelines and doing stuff and machine learning. They’ve done a great job, not only on the agency side, but on the non -QM side as well.
[David] We know that they crushed it on the agency side, but I was wondering about the non-QM is, have you been able to use Angel AI as much as you do on the agency side.
[James] With our relationship with angel AI, we are just in those stages of doing that, but on the surface level of what we’re doing with angel AI. I have to be careful how I say this, but because we have human underwriters, right? But yeah, it it’s doing a standup job.
[David] Yeah. I think the thing is the misnomer is this going to replace all the underwriters. I think it was a good doing like you just said earlier, it’s going to allow an underwriter to do that much more. It allows you to scale your business without scaling your HR costs, your personnel costs and I think that’s one of the biggest things about that. Everyone’s worried about, are we g oing to eliminate all these jobs? I was talking to Pavan about this earlier and in many ways, the industry is now starting to grow because of where it’s rates are going and we’ve already downsized. Most companies have downsized their business. They’re at the bare bones level, they’ve cut beyond the fat. They’re into the muscle, into the bone, and so they need to be able to grow without adding the cost and that’s where the real advantage is in. It’s interesting this year that non-QM, you also touched on something that the AI can read and learn the guidelines faster than you could ever teach an underwriter on it and as the guidelines shift and change and it takes out the bias, there’s so many aspects about this that are really appealing.
[James] We’re talking about our cost savings, right? when I said we have cost savings, but we really haven’t lost any F2, full time employees. But we’ve made those employees more efficient and actually they like their job a lot better, right?
[David] Because to do the part that they like best rather than that tedious stuff that just is aggravating.
[James] Yeah. And look, there’s so many things of a mortgage process that if this person doesn’t do this process and then the next person doesn’t do it on that train, we say, we have this common term and if it gets off the train tracks, it’s hard to always get it back on that track, right? It’s always off the track, right? But I would say with what Pavan and his team has done over there is really helped alleviate a lot of that noise as well. And what I love about it, and let’s just think, even with technology, things come off track, but what I love about Angel AI is when you do it, you just use this nice little word escalate and it escalates it, right?
[David] I t escalates it to a human when you need to go to it and the response rate is pretty impressive.
[James] Yeah. that is as a business owner of what we do here, outside of just the, you talk about the LO experience, which is great and you talk about the operation experience, which is even phenomenal, but from the consumer’s experience as well, the consumers today, they don’t really realize how much transition goes on behind the scenes just to get them from contract to door opening, right? There’s a lot of things that go on behind the scenes. And Angel AI takes away a lot of those steps within that process. Just the back and forth, the back and forth, the back and forth. I can tell you, one of the things that I love about it is when we put a contract date of a close of escrow date in the system, Angel AI, they’re on it, the system is on it and if that loan was the contract date was today and it got cleared to close today, the loan docs are showing up today. It’s like the loan docs are there. And our originators aren’t really used to that. They’re like. Wow, that was too easy. And I’m like, they’re really managing that contract date, if you’re an originator and you’re looking to use that system, I can tell you they’re going to hold you accountable for that close of escrow date on that purchase, right? They’re going to move a substantially fast.
[David] I want to go back to something you’re talking about because, and then we touched on it, but I didn’t spend enough time on it. I really want to stress this because I’m thinking of specific people listening to this podcast who have been talking to, I’ve been introducing to Angel AI and they’re going, you mean we could really eliminate our entire tech stack, like our LOS or POS and all the systems and all the costs and all the integrations and all the energy and money that goes into supporting all the systems, you could really, honestly, for real, can you do that? Get rid of it all.
[James] Yeah, I had to scratch my head too and just think about it and actually my head of ops, we had what are we going to do with this? or what are we going to do with that? Because look, the most common system out there for any IMB is Ice Encompass. and it’s a dual platform, whether it’s retail wholesale correspondent it’s really more geared for the retail side of things than the wholesale and the correspondent side with Pavan, if you’re an IMB that has those multichannels, it compliments all of those. You need a whole new point of sale, because Encompass has, and I’m not knocking on Encompass. Look what just happened with a cyber attack, right? It went down, it happens and they serve a purpose, but Angel AI has done a phenomenal job with the point of sale.
[David] I think it represents the future. I really do. And that’s not, I’m not trying to say anything negative, like you were saying about the future of Ice, but they’re now moving over to the integration and how their SDK Yeah.
[James] One of the things as a broker, like in a broker channel, cause the mortgage broker channel. It’s doing phenomenally well and it’s growing leaps and bounds. I used to know every broker in Arizona, right? I used to know every broker that was closing loans and we have software and we have system that I can click in and see who’s doing what and I just did a little circle around my house and I’m like, who is that? Who is that? Who’s that? Who’s that? 8 million a month. These guys are closing 10 million a month. And it’s just crazy, which is great. It’s great to see and a lot of that talent is younger talent that are in the marketplace. And as and mortgage brokers want systems that they’re on the now business. I call it the now when they want something, they want it done now and as a traditional loan officer as well, you’re in the now business and I say angel AI, I put you in the now business, not the later business because you’re not waiting on anyone. The only thing you’re waiting on is you to take an action on it and that’s what people, the miss, the misconception of ChatGPT or Angel AI that’s out in the marketplace. It’s funny. I don’t even say AI anymore. I say angel AI. It’s as good as what you tell it to do, right? the more detailed you are in the communication that you put into it, it’s not going to think for you, right? It’s very prompt oriented and one of the things that we’ve done here at Quontic is really train our originators on those prompts, right? Meaning to get right to the business and I would say if you’re a user of Angel AI or you’re newer to it, and we have so many folks that are newer to it here at Quontic, you have to make sure that you’re learning those prompts and how to use it because it’s like anything that you have in life. You have this iPhone and this iPhone does a ton of different things, right? But if you don’t know how to use it then you’re not going to get the benefit out of it. And Pavan and the team over there do a great job. They have live events that go on every day, every hour on the hour, that can train you on it and I challenge my originators to like, Hey. Jump on it. Like they’re training you for free, right?
[David] That’s the thing is you get to use this thing for free. Yeah it’s fun to hear someone. Let’s go back to talk about what the Quontic bank, where you guys are going with this. Are you only retail at this point? Are you bringing loans in on a wholesale channel or a correspondent channel?
[James] So it’s retail at the moment we are looking at and doing some case studies on the wholesale side of the house as well. We’re excited about that opportunity because it does facilitate that we just have to, with a banking institution, you got to move, certain variables. But we’ve tested it. I’ve actually, I know mortgage brokers that use Angel AI out in the marketplace and they love the technology. We’re excited to, continue to explore that path as well, really from a growth strategy and this is what it’s been. It’s been able for me to do run in production for the bank and the biggest thing is recruiting, right? When I look at the value add, so there’s multiple conversations here. With the whole NAR settlement, you have all of these real estate agents potentially looking for another vertical that would compliment potentially, earnings that were lost by not being able to represent the buyer. What angel AI does. We’re a bank, and as a bank, you can come and be employed with the bank and also be a real estate agent and you can come on, you can get licensed, NMLS license, , there’s no national test, there’s no bonding, you gotta go through the NMLS process, but we facilitate that. And so now, you get employed by the bank, and I leverage Angel AI, because not only does it do a lot for the loan officer, it also does a lot for a real estate agent. It builds them a website, right? You want to do an open house, you want to do some of those things, so it complements that real estate agent
[David] Creates the flyers creates websites all for free. That’s the part that just goes…
[James] I know I tell you know I was emailing this morning on some content that we’re working on one of our loan officers and very responsive and it’s do you want the presentation and the flyers with the information? and I’m like if it’s not too much to ask can you do both and they’re like, certainly and that that’s one of the things. On the growth strategy, it’s allowing us to recruit a different model, that’s not common. and that has not been common, but due to recent changes within our industry, we’re seeing more and more real estate agents and we’re seeing the IMBs go out and recruit real estate agents, right? The value add that I have at the bank is we leverage angel AI that, conventional agent, agency, government, no overlays, and the system is just so smart. We recruit with that and that’s been very very beneficial for us. In addition to just your traditional retail loan officers and what I tell retail loan officers, when I talk to them, I’m like. You have to buy into the technology or you’re going to be pushed out of your industry.
[David] You’re going to be pushed out. That’s the reality is this thing is changing so rapidly. And if we stay in the old path processes, the old ways of doing business, you’re going to wake up one day and the game has moved on you and then that book who moved by cheese. We’re in that place where things are shifting and it’s happening more rapidly than most people realize.
[Jamese] Yeah. And you can’t really say that age because, the average age of a loan officer and originator, they say that’s still up at upwards in the high numbers and the myth is that the older generation doesn’t adapt to technology. I can tell you my mother god bless her heart at 78 years old. She knows technology probably better than I do because she’s invested some time and energy in it. I mean she’s posting things on social media with backgrounds and stuff that I can’t even do so I hate hearing originators use that as an excuse. I just I’m old. You’re going to be out of a job if you don’t learn that because your referral partners, your borrowers, they’re going to an easier path and a quicker solution and I think if you don’t adapt to that and you’re an originator on, I hate to be the bearer of bad news, but there’s reality and there’s reality.
[David] Reality is adapt or die. I hate to say it. And it’s not being unkind. It’s just trying to wake him up and that’s why I wanted to have you on James, to get you and your perspective for two perspective number words. I know you’re a real good evangelist for Angel AI, and wanna talk about CDFI and find out what that is about or first hearing about it. Is that a type of structure of a bank you’re gonna see more of? We’re gonna be the, IMBs are gonna competing with more and more out there. Do you think? or it’s so difficult to get it. It’s gonna be a highly specialized bank.
[James] The CDFI did make some changes. December 20 something 2023. There’s some things that take place 1/1/2025 that it’s not very advantageous to be a CDFI. One of the biggest components previously until this new change is coming up was if you were CDFI, you could originate, close, securitize loans that did not meet ATR ability to repay, what that allowed institutions like Quontic to do and a few other IMBs that are out in the marketplace doing a good job of that was originate primary and second homes with no income, no employment. It was all classic lateral base and reasonable lending, but you could only do that if you were a CDFI and securitize that. So there was a ton of activity and volume for that out in the marketplace, we’re regulated by the OCC, so being the only digital bank that is a CDFI, the OCC came in and said, Hey Quanti, you guys are doing all these loans, $400 million a month with no income, no employment on primary second homes. You can’t do that and be a bank. We’re like, we’re CDFI. We can do that. We had to pivot and what we created was we call it our like doc product, right? Alright. It’s a P&L for that self-employed borrower, they only need to be self-employed for one year, two years, same line of work. We give you that P&L, you take a two year CPA, no expense factor, no business bank statements needed, right? and we qualify you off of that. Now there’s a, there’s P&L products that are out in the marketplace, but those traditionally require two year self-employment. They want the business bank statements and they’re not going to give you a form for those wage earners, right? We have a five question VOE that we send out to the employer and we just ask, certain questions. It’s not your Fannie Mae VOE and we really allow you to combine all income sources, cash tips, bonuses, overtime. If you have less than two years, we’re going to take that and we’re going to qualify you off of that. That’s how we are able to meet ATR with those easy to use simplified forms. The income is there, we’ve got the validation, we’ve got the assets, the qualification on the assets is relatively pretty simple. That’s something that we’ve been a champion out in the marketplace for almost two years now and yeah, the mindset is this product, P&L replaces the bank statement loans because 9 out of 10 borrowers more out of 10 borrowers are self employed. So you have to go bank statements that I do webinars all the time. If you’re on this, make sure you follow me. I tell originators never do a bank statement loan again. and what’s the common headaches of a bank statement loan? Getting all the pages, large deposits, NSFs, right? You take that away with a P&L, right?
[David] That’s fascinating. How are these loans performing?
[James] Better than QM loans. So…
[David] That’s staggering!
[James] Yeah, you got to think about it to these borrowers are coming with 20 and sometimes 30% down.
[David] Yeah. See, that’s the key. When you’re putting that much down where we went wrong in the last cycle, it was when we took the loan to value ratios and brought it up to the highest percentage levels. If you’re putting a significant amount down, these are at 60 or 70% LTVs. There is a greater probability that these things are going to perform.
[James] Yeah. And look, we’re not a lender. That’s going to say, Hey, Give me our minimum FICO score 660 on our standard product, 680 on our DSCR product. There’s others that go down in the marketplace. One of the things that I don’t see with the non QM space is the credit box expanding. I was at a DSCR event in Miami in January and we’re coming out of 2023 rates are going to drop, blah, blah, blah and I sat on a panel and it was like, the credit box is going to expand for the non-QM and I’m like, too many indicators that, credit card delinquencies are at an all time usage high. Auto loan delinquencies, they’re now creeping back up. So as a consumer, and let’s just think about this with our commonsense hat on. If I were to stop paying my bills, it would be the credit card. It would be the auto loan and then it would be the mortgage would be the last one and the reality is, knock on wood, we don’t see that ripple into the mortgage side and as people are sitting on tons and tons of equity today, but I don’t see over the coming year, You were going to do a 95 bank statement long, right? Yeah. We’re going to do an 80/20, right? I don’t think that lending is going to come back. I think just based off of that and the skin in the game that these borrowers have, the default rate is going to be less than normal, the biggest performing loan in that we have in in our portfolio. The best performing is I10 borrowers. And those borrowers they’re buying properties across the country, which is great. As we promote home ownership and they perform well.
[David] Yeah. That’s so good, man. You’re obviously on top of the part I like the best is that you’re serving the underserved. I’m so about getting into the underserved markets and really making a difference. Not that every one of them are qualified or ready to buy a home, but you’re going in and you’re creating hope for people that probably never thought that they could own a home. Kudos to you for what you’re doing there, friend.
[James] Look, it’s something we’re very proud of and one of the things that we look at too is, specifically in our wholesale channel, we take transferred appraisals, right? So that means that appraisal was ordered at another investor institution and we’re taking that in and we close loans that other institutions will not close based on various, reasons, whatever, because of our CDFI and our willingness to close loans, responsible lending in the sense of our guidelines are more potentially, a little more user friendly than what is out in the common marketplace. My operations manager who heads up that in my head of underwriting, they’re like, these loans come in and they come in hot, right? They’ve been somewhere for a month or something, and we got to close these, we got to close this on in two weeks, right? or 10 days. And we execute here at Quontic in at a high level. Our operations partners do a phenomenal job doing this.
[David] That’s amazing. I love it. They come in hot. That’s a great expression. They come in hot. How big of what’s the lending footprint for Quontic Bank at this point? you’re located in phoenix. How big is the bank’s lending footprint?
[James] We’re in all 50 states. That’s one of the advantages of being a bank and I would tell you one of the biggest markets that we have from a lending standpoint is the NorthEast, New York, right? we do a lot of co-ops become more common in today’s marketplace, non-rental condos. Those are some things that we really play in a space, but we’re in all 50 states from a lending footprint and so that’s something that we’re excited about as an originator with me, if you’re day one, you’re licensed in all 50 states, you got family in New York you’re doing the loans in New York. That’s wonderful. And we allow mortgage brokers based on state requirements to close loans in certain states. They’re not licensed as through our DSCR loan that we treat as a commercial loan. So that’s another value add.
[David] Yeah, man, that’s great. Some of the things you’re doing and the bank very innovative. I love it. This has been just delightful James to have you on the podcast. and then the fact that you are you really do a great job of not just hyping Angel AI, but substantively saying why it is working for you and I’m really grateful for that. I want to get that message out. People say, yeah, you’re just doing that because Pavan and Angel IA and Celligence is an advertiser in your podcast. yes, but. Even if they weren’t, I’m telling everybody pay attention to where the future is. And it’s we’re seeing the future in Angel AI.
[James] Look, I will tell you on a personal level you will not find a harder working individual than Pavan. I have a running joke with some colleagues that we do business with Angel AI at other institutions and we swear the man doesn’t sleep.
[David] He doesn’t. I don’t know. I just got a message in from him. He just came back from Singapore. He was flowing in there. Then he said that it’s crazy. Yeah, he was just in your it’s nuts. The guy. I hope he does. I knew his dad real well. That’s how I met Pavan when he was 11 years old. Everyone’s heard that story. I don’t need to repeat it again, but it’s a great story. And it’s fun to see someone who’s passionate, but you find out something you’re passionate about. And you’re clearly passionate about serving the underserved and going in with these advantages you have. I hope our listeners will reach out to you. What is the best way for people to connect with you, James?
[James] If you’re a retail loan officer out there, right? You can go to quonticbank.com. We’ve got information there. If you’re a mortgage broker and you’re listening, we’ve got quanticwholesale.com. We’ve got ways to get in touch with us there. You can I always tell people I do webinars all the time. I’m like, just put that as your homepage, right? Just save it and you can get a lot of information there. I’m always available as well. So you can find me at in the contact us on both of those websites. So quonticbank.com, quanticwholesale.com, you can call, email, text me, you name it. I’m always available.
[David] Yeah, I love it. The availability is you and Pavan have that in common. You’re both hard working as guys. Thanks, James, so much for being on the podcast. I love it.
[James] Yeah, we greatly appreciate it. Thank you so much, David.
[David] You bet. Take care.