Ms. Hering’s case highlights how a flavor of mortgage once panned for its role in the housing meltdown a decade ago is making a comeback.
Lenders issued $34 billion worth of these unconventional mortgages in the first three quarters of 2018, a 24% increase from the same period a year earlier, according to Inside Mortgage Finance, an industry research group.
Even so, some regulators, consumer advocates and others worry that the growth in this type of mortgage and rising competition to make such loans could lead to renewed risks for the housing market.
But traditional lenders, which are doing less conventional business as interest rates rise, are turning to borrowers with harder-to-document creditworthiness as a new source of revenue and are helping to drive the growth.
Tom Jessop, the loan consultant at New American Funding who handled Ms. Hering’s loan, said he has seen demand for unconventional loans double over the past 18 months and they currently makes up more than one-third of his business.
“As more companies enter the space you’re going to see more competition, and with more competition, you’re going to see loosening of underwriting” standards.
Photo: Jessica Pons for The Wall Street Journal In many unconventional loans for which it is difficult to document income, borrowers use bank statements like Ms. Hering did to show they are making money.
Newsletter Sign-up Ms. Hering, who is 30 years old, received a loan at a rate of just over 6% for the first five years; it adjusts after that.
She used the money to fully buy out her grandfather’s house in San Clemente, Calif. She jointly inherited it with other relatives and said she needed a loan to pay them for their shares of the property.
“It was scary because if it didn’t work out then I would have had to give up the house, but I was determined to keep it,” said Ms. Hering, who is renting out rooms in the house to help pay the mortgage.