Rather than pushing speculation in the housing market, people are seeing how non-QM loans can facilitate homeownership for those truly worthy
The economy keeps humming along, and while mortgage originators are benefiting from the spoils of low unemployment and high consumer sentiment, the recovery period hasn’t been rosy across the board.
There has been a fairly slow recovery for low-income earners, and those are the people who need the most help getting into homes. Not because they can’t afford it, but because they’ve been repairing their credit. With the growth of the non-QM market, these would-be borrowers have the most to gain.
“You could have people who are very mindful of their credit, live their lives in a very organized manner, but their loan to percentage of income is going to be outside of the QM mold, so I think the non-QM has really facilitated people who want a home and can actually buy a home and enabled them to get in a home,” said Pat Stone, chairman and CEO of Williston Financial Group. “It’s not the same environment that it was back when we had the subprime bubble. That was froth, that was speculative, you’re really talking now about people earnestly trying to get into a home, it’s a different kind of market.”
Stone says that their area of the industry suffered a “tremendously high” loss ratio from about 2010-2013, and over a third of that was due to fraud. But while the actual loss experienced due to non-QM loans is higher than QM loans, it’s fractional.
Joey McDuffee, vice president at Blue Sage, said that they’re discovering more and more people borrowing in the non-QM segment have been left by the wayside.
“Some of them may be students that have lots of student loans, and they haven’t established a long history of credit, so they may fall into this non-QM,” McDuffee said. “One of the big trends we’re seeing is that more and more lenders want to push more to the borrower with guidelines and guardrails build into the systems . . . and they can have discussions with processors or sales experts when needed. But the more that they can push to the borrower, it’s a better customer experience and customer journey.”
Apart from the general customer journey, there’s also another reason behind the increased desire for non-QM adoption. Students or those with a bruised credit history aren’t the only buyers who could benefit from more mortgage originators who knew their way around the non-QM space.
“One in three Hispanic households own a small business and self-employed borrowers are frequently overlooked by many mortgage lenders. Competitively priced non-QM loans could be an important source of mortgage capital for self-employed Hispanic consumers,” said Gary Acosta, CEO of the National Association of Hispanic Real Estate Professionals (NAHREP).
The issue with expansion, then, is making sure that it’s adopted and adaptable to best fit this segment of the market.
Technology and systems can make a big difference in adoption, and for McDuffee, it all comes back to economics.
“Without a modern extensible platform to support non-traditional credit standards and other variables so that lenders can be more comfortable offering these products, lenders will just have to add more bodies, and that’s not sustainable,” he said.
The non-QM segment has been growing rapidly for the past couple of years. There is some growing uncertainty around the expiry of the QM patch, but if anything, the expiry may lead to decreased mortgage availability in the conventional space—and increased opportunity for non-QM lending.
But anyone who thinks it a risky proposition is probably not up-to-speed with the latest offerings. Originators should know the difference between today’s guidelines and those that existed more than a decade ago.
“We’re just not seeing the problem. People that want to buy a home are getting a non-QM loan because they want that home right now. This is not a speculative market, this is not a market where people are conducting fraudulent activity in order to benefit from a bubble. That isn’t happening. It just isn’t creating a problem yet, so I’m not as alarmed by it as some people [are].” Stone said.
