The product will again play a key role into 2024, officials say
The following article was produced in association with Deephaven Mortgage.
In a downward market, non-QM mortgages played a key role in helping Deephaven Mortgage escape the economic doldrums that affected the industry in general. As 2024 unfolds, the product will continue to play a starring role.
“We have some tailwinds going into next year, Tom Davis (pictured), chief sales officer for Deephaven, told Mortgage Professional America during a telephone interview days before the holidays. He stated that the Fed’s decision not to raise rates again at its December meeting was a good omen for the coming year.
“This year was a very challenging year in the mortgage industry as we all know,” Davis said. “We knew that originators needed to expand their product offerings. We saw credit pull back at the banks, so that tightened up. Originators needed other tools to serve all borrowers in the marketplace, not just the agency borrowers.”
The reason for that is: “There are non-QM borrowers in every town,” Davis explained. “You have self-employed, high-income, high net worth, credit event borrower and real estate investors.”
He further illustrated the latter scenario, “This year was a big year where 27% of the transactions in the United States were investor transactions,” he said of 2023.
Indeed, according to CoreLogic, with whom Deephaven produced a webinar on the subject, the sizeable US home investor share seen over the past two years held steady in 2023. In March, according to the provider of data and analytics, investors accounted for 27% of all single-family home purchases. By June, the number was virtually unchanged at 26%.
“We saw adoption continue to increase across the space,” Davis said. “Originators were embracing and adopting non-QM. This year alone, we hosted around 1,000 webinars for our clients to educate and train them on the products and our resources. The net result are loan officers comfortable offering the product and utilizing our resources. It was a very grass-roots effort to drive awareness. From there, we spent a lot of time educating our clients on sourcing non-QM borrowers and where to tackle the business, which was well received as well.”
Besides the high level of investor transactions and the growing appeal of non-QM, changing demographics also boded well for Deephaven, Davis suggested. In describing the scene, he ticked off an impressive array of statistics from memory.
“In the United States, there’s close to 20 million people that are self-employed - a testament to a very entrepreneurial-spirited country that we live in,” he said. “This accounts for close to 30 million-plus businesses In the United States, there are 19.5 million investment properties that account for 49.5 million units. Of those 19.95 investment properties, about 18.5 million are one to four units. So, there’s a large population of real estate investors out there – first-time and professional investors.”
Studying the market carefully, Deephaven quickly catered to the growing segments. “What we did this year to expand on that product, DSCR [debt service coverage ratio], was to offer business purpose lending where the borrower could actually be the LLC, and that’s gained traction,” he said.
Another growth area: “We’ve also gained traction in the second lien space,” Davis said. “I believe there’s close to $29 trillion in capital equity in the United States. Credit card debt is at an all-time high, car loans are at an all-time high and people have to make payments on their student loans now. We’ve had a lot of folks live in homes that are a little older, so they need maintenance and upgrades. Since we’ve rolled out that product, we’ve seen production increase month-over-month and that’s been a successful launch as well. We see that being a bigger piece of the market next year because when you look at the first lien, it doesn’t make sense sometimes to do a cash-out refinance just to get some extra cash to consolidate your debt to improve your cash flow.”
Inner machinations reflect the growing demand, “We’ve built out some tools,” Davis said. “We now offer a blended rate calculator to help our clients understand the benefit of a second lien,” he cited as an example. “We’ve had a successful launch there.”
And how about this strong economy? “So, you have that market, you have the investors, you have the self-employed people we talked about. The Dow just hit an all-time record recently, so among people who have net worth we’re seeing more folks qualify or looking to qualify with their assets.”
It was a topsy-turvy year to be sure, but those aberrations have benefited Deephaven. “Traditionally, heading into the fourth quarter the market tends to slow down in housing, in production. It has been the opposite for us,” Davis said. “Last month, in November, we achieved an all-time record amount of lock units in our 11-year history. Our momentum continues to grow.”
The company isn’t only eyeing its bottom line but that of the loan originators connected to the firm at a time when gaining market share is paramount. “And we’ll continue to educate loan officers to help them become market experts in these products. “It will help them differentiate themselves from every other loan officer in the market. We’ve seen that time and again: Our customers, our partners, loan officers, have come back to us and said ‘hey, this has really helped me grow my business in a difficult market’.”
Indeed, while some are wary of the coming year, Deephaven officials are confident of further gains. “We remain bullish,” Davis said without hesitation.
