As the space continues to snag market share, here's how to grow your business in non-QM lending
Uptake of non-QM loans in the US mortgage space has jumped in recent years – and with the sector’s overall market share hitting the 5% mark in 2024, opportunities for mortgage brokers in the segment are also on the rise.
The growing number of borrowers turning their attention to the non-QM market as conventional lenders tighten their own lending criteria has increased competition and demand for quick turnaround times in the space. That means submitting as detailed and comprehensive a deal as possible to lenders is the best way to get a loan over the line, according to an executive in the sector.
Marianne Kozak (pictured top), executive vice president for national wholesale/non-del sales at LoanStream Mortgage, noted a big change in borrower expectations toward application times. “As always, the better the package brokers deliver to us, the easier it is to close,” she said.
“The pressure is on closing loans in 20 days – that’s the reality. It used to be with non-QM you closed in 45 days and even an FHA loan, 45 or 60 days. And now the expectation is you have a 30-day contract, and you’ve got to get the loan closed in 20 days.”
The good news for brokers is that by taking simple and manageable steps – being prompt and efficient in gathering and submitting the required information – they can maximize their prospects of having a deal approved, Kozak said. “As they get busier and as they get more customers coming in [it’s important to] just stay organized, making sure they’re not missing any steps in gathering documentation from customers,” she explained.
Approaching each deal with the right mindset and a focused mentality can help set brokers up for future success with lenders, according to Kozak, as they grow their reputation as a mortgage professional with the ability to get things done in as timely a manner as possible.
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“The better the loan is packaged, the quicker any lender can get it closed – and that’s really what you want,” she said. “That’s the name of the game because then they’re referral sources. We’ll send them another loan because they got their loan done quickly. So the big thing is, just as brokers get busier, to not lose those organizational skills and make sure they know what they need to get from each customer based on the product.”
The rise of non-QM continues
A recent report by MCT Trading showed demand for non-QM products had surged in 2024’s third quarter, partly thanks to a spike in institutional investors seeking to add those product types to their portfolios.
Originations in the space, including second mortgages and HELOCs, increased by 20% on a quarter-by-quarter basis, the report showed, as the sector continued to withstand the impact of rate turbulence and wider market uncertainty.
The sector has also benefited from an influx of high-quality, low-risk borrower types in recent years with solid credit scores and a similar average loan-to-value (LTV) ratio to the QM space.
Confidence is rising among major players in the sector that it’s set to further build on the progress seen this year moving into 2025.
What’s in store for mortgage lending in 2025?
Plenty of brokers have gotten their start in the non-QM space this year, although Kozak also flagged government lending as a sector that could be in the early stages of a comeback.
As rates have increased in recent years, opportunities for refinances, streamlines, and interest rate reduction refinance loans (IRRRLs) have waned. But the remainder of this year and beginning of 2025 are likely to see an uptick in those types of loans and DPA (downpayment assistance programs), Kozak said.
Still, the growth of the non-QM space doesn’t show much sign of easing, with expertise in that sector now an essential tool for brokers in generating as many business opportunities as possible. “Non-QM is here to stay,” she said. “It’s definitely a product that’s not a niche anymore. It’s now a must-have if you’re a broker that wants to be successful moving into 2025 and beyond.”
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