There’s good news for mortgage applicants who don’t fit into the precise mold demanded by Fannie Mae and Freddie Mac: After pulling back at the start of the pandemic in March, other lenders are returning to the market.

Banks like Citi, Flagstar, Regions Financial and Truist have turned on the financial spigots again, according to industry publication Inside Mortgage Finance, and non-bank lenders have begun loosening their rules.

Better yet, demand for these loans by investors has strengthened -- meaning as direct lenders sell loans on the secondary market, they will take in more money to make even more loans.

There’s not as much investor activity as there was before COVID-19, but it’s on the upswing compared to April, Michael Franco of SitusAMC told me. The company provides due diligence services for investors.

Pooja Pathak, a director of structured finance at MetLife, sees the same thing. “Demand is out there,” she said during a recent panel discussion.

Loans that don’t make the grade at Fannie and Freddie, the two government-sponsored entities that buy the lion’s share of mortgages, were once called “subprime.” And they’re held out as largely responsible for the mortgage meltdown that led to the 2008 Great Recession.

Back then, Wall Street capital chased mortgages like these: loans in which their balances increased rather than decreased, balloon mortgages in which a large amount was unpaid until the loan term expired, interest-only loans in which no principal was repaid, and loans in which neither the borrower’s income nor employment was verified.

As a result, loans were made to practically anyone who could fog a mirror because, in selling their production to investors, lenders assumed little risk. And when housing prices began to slide, the mortgage market crashed.

The mortgage business “spiraled out of control,” says Steve Schnall, founder of Quontic Bank. “There was a race to the bottom of the credit barrel. And when property values stopped rising, everything collapsed.”

Now, mortgages that don’t fit into the Fannie-Freddie box are known as “nonprime” and “non-QM loans,” as in non-qualified for purchase by the GSEs. But they’re not nearly as dangerous, says Franco.

No more “liar loans,” for example. Negative amoritization loans are gone, too, as are balloon and stated-income loans.

Non-QM lenders have to meet the same regulations set up by the Consumer Financial Protection Bureau under the Dodd-Frank Wall Street Reform and Consumer Protection Act for lenders who want to do business with the GSEs.

Under the rules, for example, lenders selling loans to Fannie and Freddie must be reasonably certain that the borrower has the ability to repay the loan. There are seven other underwriting factors that must be considered, too, including the borrower’s employment, projected monthly payments for other loans and obligations (such as alimony and child support), and credit history.

Non-QM lenders must do the same. But they often stretch the box -- sometimes more than a little -- based on the borrower’s credit score and loan-to-value ratio, as opposed to debt-to-income ratio. That means they’ll exceed the 43% DTI ceiling that binds the GSEs. And they’ll often lend amounts above Fannie Mae and Freddie Mac’s statutory limits, which this year is $510,400 in most places.

Quontic Bank is just one of many non-QM lenders. It offers financing to low-income but creditworthy borrowers running small, single-person businesses; well-capitalized startups; and businesses with nonrecurring debt or low overheads. Also on the bank’s target list are immigrants, the self-employed and so-called gig workers: musicians and others who go from one temporary job to another.

“There are many good borrowers who don’t qualify by traditional standards,” says Schnall.

Indeed, with COVID-19 causing temporary job losses, credit dings, career changes, depleted assets, forbearance and other financial challenges, the need for non-QM lending “has remained, if not grown,” writes Aaron Samples of First Guaranty Mortgage Corporation in the most recent issue of the Non-Prime Lending Council’s newsletter.

Using what Schnall says is “a commonsense approach” to approving borrowers for financing, lenders like Quontic are back in the game after all but shutting down when the virus hit. For example, LoanStream Mortgage has expanded its product offerings, including lowering its credit score requirement to 640 and raising its minimum loan-to-value ratio to 80%.

Elsewhere, Angel Oak Mortgage Solutions is now allowing LTV ratios up to 90% for borrowers who can show two years’ worth of bank statements. Greenbox Loans has full-documentation loans up to 90% LTV, plus loans for foreign nationals that require no tax returns, and 70% LTV loans up to $750,000 for people just out of foreclosure.

Meanwhile, the CFPB has proposed allowing non-QM loans to become qualified mortgages three years after their origination if they meet certain qualifications. The objective, the bureau says, is to “incentivize” more lenders to make non-QM loans they otherwise might not.

None of this is intended to necessarily tout the lenders noted here. Rather, it is to say that would-be homebuyers who don’t think they can qualify for financing should find a good mortgage broker who has a finger on the market and see what’s out there. Or, if you’ve been turned down for a mortgage during the pandemic, you might want to give it another try. You may be pleasantly surprised.

Working out of our homes has been part of the American culture since the country was founded. But the pandemic has forced more of us than usual to do so. And some folks who have lost their jobs as a result of the virus have started home-based businesses to get by.

There’s no telling how many people now work from home, or WFH in today’s jargon. Ten years ago, the Census Bureau said 6.6% of the working population worked from their residences. But in 2016, according to a Gallup poll, 43% of all workers said that they spent at least some of their time working in a location different from their co-workers -- up from 39% in 2012.

As recently as 2018, the Bureau of Labor Statistics said 35.7 million -- a whopping 25% of the total workforce -- worked out of their houses. And those numbers have undoubtedly increased as COVID-19 continues to run rampant.

Many laid-off people have started in-home businesses -- sewing face masks, cutting hair or mowing lawns, for example -- just to survive. Some of the other popular home-based businesses include tutoring, personal training, catering, daycare, home repairs, bookkeeping and housecleaning.

But whether you run a business out of your abode or just work there remotely, you should be aware that you could be breaking the law -- or at least the rules of your homeowners’ or condominium association. Even if you are legit, you should make sure you are properly insured.

There’s good reason to regulate home-based businesses. After all, they can alter the residential character of a neighborhood by generating unwanted traffic, taking up scarce parking spaces or creating objectionable noise, obnoxious odors or unsightly conditions.

Local zoning laws address these issues, as do most owner associations. Many at-home workers hide their enterprises, fearing they could be shut down, but questions rarely surface unless a neighbor complains or the worker flaunts the law. And neighbors don’t usually speak up without good reason. For example, my wife’s mechanic was forced to move his backyard business elsewhere when neighbors complained about cars parked all over the place.

If you operate a business out of your house, take great pains not to annoy those living around you. Just in case you do raise the wrath of a neighbor or the authorities, it’s a good idea to look around -- on grocery store bulletin boards or in the local paper, say -- for other businesses that may also be in violation of the rules. The owners of those businesses could become your allies in any confrontation.

When it comes to insurance, most home-based business owners don’t think they need additional coverage because they are protected under their homeowner’s policies, or that their businesses are too small to insure. Wrong on both counts!

Generally, a homeowner’s policy provides no more than $2,500 to replace damaged or stolen business equipment, and doesn’t include business liability or business interruption coverage. These, according to the nonprofit Insurance Information Institute, are essential if an employee or customer is injured on the premises, or if a loss requires you to shut down for an extended period.

Insurance companies differ widely in the types of business coverage they offer, so it is best to shop around. The best choice will depend on the nature of your business. A tax preparer, for example, will have different needs than someone who operates a daycare. The three main types of coverage are:

-- Endorsement. For an additional premium, you can raise your policy limits on home-business losses to $5,000 or $10,000. Such a rider is your least expensive option, but it may not be sufficient to cover a lot of expensive equipment, and it does not include liability or interruption coverage.

Generally, a home-business endorsement is good for folks who have only a few business-related visitors, or none at all -- such as syndicated columnists or other writers. Tutors and piano teachers may be eligible, too, depending on their number of students.

-- Separate policy. Somewhat more comprehensive, an in-home business policy covers business equipment and liability. It will also reimburse you for the loss of important business papers and records, such as accounts receivable, and cover off-site business property. Some will pay for lost income if your house becomes unusable due to a fire or natural disaster, and some might even pay for the extra expense of operating out of a temporary location.

The cost ranges from $250 to $500 or more, depending on the type of business, number of employees, safety features in place and amount of coverage.

-- Business owner’s policy. Known in the trade as BOP, this type of coverage is based on the size of the premises, the limits of the required liability, the type of commercial operation and the extent of off-site servicing and processing activities. It also covers any personal vehicle that is used for business purposes.

To keep your costs down, industry nonprofit III suggests starting your hunt for coverage with trade associations or business groups. These outfits often provide coverage at reduced rates based on the volume of business they can offer an insurer, and negotiate coverage specific to your type of business.

Absent that, make sure you work with an agent who understands your type of business. And again, shop around.

Most professions restrict the payment of referral fees. But they run rampant, and are somewhat controversial, in real estate.

According to the latest report on the inner workings of the industry from the Consumer Federation of America, these fees can go as high as 50% of the sales commission -- when the referring agent is a relocation company -- to as low as 10% when a homebuyer’s exclusive agent refers him or her to another so-called “buyer’s broker.”

Typically, referral fees are hidden from buyers and sellers. The accounting and investment professions require disclosure, and most businesses in which referral fees are common do the same. But the National Association of Realtors’ code of ethics does not require their disclosure, and most agents don’t feel the need to do so. A handful of states require disclosure, but not always in writing or in a timely manner, and the CFA could find no evidence those laws are enforced.

In most other businesses, referral fees are in the 5% to 10% range. But the CFA found that 25% was the average for realty referral fees.

So, if you bought a $250,000 house using an agent referred to you by another agent, your agent would pay part of her share of the commission to the referring agent. If the commission was 6% and the referral fee was 25% of the agent’s half of the commission, she would send the referring agent a check for $1,875.

Earning referral fees can add up, too. According to a 2008 study cited in the report, nearly nine out of 10 agents received income from referrals, with more than half taking six paid referrals within the previous 12 months. Nearly half said they earned at least $10,000 in income from them.

Moreover, 8% said they made $50,000 from referrals over that period! Some agents go so far as to “sell” their referrals to the highest bidder, said Steven Brobeck, the report’s author. Pedaling referrals is “not a practice most agents would engage in,” he told me. “Nevertheless, it appears to exist.”

Still, it’s not likely that referral fees will cost either the buyer or seller any more money. Even though commissions are supposed to be negotiable, they are all but set in stone in real estate. Agents aren’t likely to raise their rates to recoup the fee, but they are not likely to agree to a smaller cut, either.

However, as the CFA report points out, these fees can cost you in other, more insidious ways -- like in the quality of service you receive. While it’s possible a referral fee could ensure that the agent being referred does excellent work, it also could encourage the agent to recommend someone willing to pay a fee above the going rate.

Or, since the referred agent will have to fork over a big chunk of his earnings, maybe he won’t provide the level of service he should. Or perhaps referred agents are willing to pay a fee because they are inexperienced or have a tough time finding clients.

Any of those are strong possibilities, said Stephen Brobeck, the CFA’s former executive director, who has been researching realty brokerage issues for nearly 30 years.

Here’s an example, from one of Brobeck’s footnotes to the report: “Many real estate professionals see referral agents as simply parasites.” Another: “Secret referral fees (result in agents) stealing billions of dollars from consumers.”

But the worst offenders aren’t realty agents themselves, but companies like relocation and referral agencies. The former are often hired by businesses to help relocate employees; the latter, by outfits like HomeLight, Rocket Homes, Clever, Yelp and Thumbtack.

To see how well 15 referral companies performed, CFA put them to a test. They didn’t perform well.

When asked to refer an agent, most of the companies provided names (via email) either immediately or fairly quickly. But two didn’t respond at all, and some did not offer their service in all four of the test cities. Overall, the names of 100 agents were received. But 18 were agents in other geographical areas, and two were agents not engaged in residential real estate.

Of the other 80 referred agents, 18 had one sale, at most, in the previous year, and 15 had at most one customer review. And every agency that supplied names included one out-of-town agent with five or fewer sales.

Put another way, 38% of the referred agents were either based outside the designated search area or had at most one sale.

“Consumers cannot rely on agencies for referrals to experienced agents located in the geographic area of the home search,” Brobeck said. People “should be extremely wary of many of them. I can’t say all offer no value, but you are taking a risk” by using them.

It should be noted, too, that agents who are listed on referral sites pay to be there as a way to secure leads. And in some cases, an agent told me, those listed have voluntarily placed their licenses into “inactive” status.

So what are sellers and buyers to do? First of all, realize that the existence of a referral fee will make it difficult to negotiate a lower commission: Selling agents aren’t likely to give away any more of their stake in the deal than they already have.

Think twice about using the services of a referral agency. You’re unlikely to get what you pay for. Besides, you have the ability to search efficiently and effectively on your own for an agent at sites providing extensive information about a large number of active agents.