Is the non-QM market healthy or not?

The non-QM market proved remarkably resilient throughout the pandemic. However, rising interest rates and other economic challenges have started to take a toll on the once-booming sector.

Non-QM experts Will Fisher (EVP of non-conforming at Loan Stream Mortgage), Nick Harvey (senior VP and regional sales manager at Acra Lending), and Tom Davis (chief sales officer of Deephaven Mortgage) remain confident, however. In MPA’s latest power panel, they discussed the state of the non-QM sector after a series of market withdrawals.

“It’s been a little bit of a wild ride here for the last couple of months,” said Fisher. “And non-QM, if you equate it to just normal business cycles, you’re going to have periods of expansion and contraction. Depending on how well your business model is, how well you’re watching the means, and what your plans and strategy are can really determine if you’re going to make it through or not.”

Fisher pointed out the recent upheaval in the market as some lenders exit the non-QM space.

Read next: Sprout Mortgage faces major lawsuit over breach of contract

“You also see some of the lenders that were really just agency lenders that try to get in non-QM maybe shuttering a retail division or shuttering a wholesale division, but still staying around in their present form,” he said. “So, I think that’s normal in certain business cycles because overall, non-QM has been pretty solid. I mean, you’ve had to know what to do with your loans before you even fund them, whether you have them pre-sold or some type of agreement to hedge yourself against the volatility in the market. But those of us who have and continue to are doing just fine.”

Harvey agreed. “I think non-QM is strong. The demand is there. There’s healthy competition. There are lots of borrowers that need to qualify unconventionally, that don’t qualify in the normal standards of the government agency paper. So, we have products for them, and we’re seeing an uptick in volume over the last three months. Even with the rates where they’re at and affordability, these borrowers still need this paper. I mean, you wouldn’t have non-QM without QM.”

If you look at the overall origination market, Davis added, production has plummeted by over 40% year over year.

“So, the overall market, not just the origination market… have we’ve seen this all the volatility from early on in the year,” Davis said. “In the non-QM space, you have volatility in the interest rates, but the demand for these products has been strong. In fact, we have seen an increase in production and 2022 origination into volume securitization volumes, loans that are being held in a portfolio - that volume is going to increase year over year.

“So, we’re very bullish about the non-QM space. We see the market continuing to grow, but definitely some volatility there. It’s important that you work with an investor who has the experience to navigate through the volatility, not just in the non-QM space.”

You can watch the full MPA TV episode here: Non-QM Power Panel - Thriving amid the turmoil.