Other popular programs include investor debt ratio coverage loans, asset depletion for older borrower with assets but unpredictable income, and near-QM programs for borrowers who fall just outside of the QM definition. HW: What are the most popular non-QM products and programs right now?īH: Bank Statement programs are by far the most popular, and they are expected to become an even more important tool as self-employment and the gig economy grow. With the new enhancement, lenders can search across values and key words (such as Venmo) and track deposits from a variety of sources, such as small businesses, professional practices, sales commissions and from gig-economy employers, like Uber and DoorDash. Recently we’ve enhanced our Bank Statement Analyzer platform which allows lenders to collect and verify bank statement data in less than half the time it takes to manually calculate income for non-QM mortgages: approximately 3 hours vs. The same technology behind the eligibility engines also drives our non-agency AUS that is being used by some large non-QM players to make underwriting decisions. These engines allow originators to instantly test loan scenarios, so they are not wasting their time or the investor’s. For example, major non-QM investors have been leveraging LoanScorecard’s technology to build originator-facing eligibility engines. Technology is a big part of the answer to this education challenge. It’s also a significant pain point for investors, and the reason why there is a very high fall-out rate with non-QM, in some cases as high as 70%. Keeping track of which wholesale lender or investor is buying what has been a challenge for originators. Over the past year, as more investors got comfortable with non-QM again, credit boxes widened quite a bit and investors were aggressively relaxing their guidelines. And investor guidelines are continually evolving. There is definitely a learning curve with non-QM: the products, the underwriting and documentation requirements (for example, bank statements vs. But, as we’ve noted, necessity is changing this. HW: What are the challenges of educating originators on these products of rapidly changing guidelines?īH: There’s no question that non-QM is more difficult to originate than conforming or government loans, so many mainstream brokers and loan officers have been reluctant in the past to offer these products. Much of this volume was securitized in the 68 deals that came to market in 2021. Last year, non-QM originations topped $25 billion, which was ahead of 2020 and back up to pre-pandemic 2019 levels. Overall, I think the consensus we’re hearing from clients is that the overall non-QM market is going to continue to grow in 2022. is just under 10 million, a 4.6% annual increase. According to latest numbers from the Bureau of Labor Statistics, the number of self-employed people in the U.S. Non-QM also does well in a purchase market, because it serves borrowers who don’t fit into neat underwriting boxes: self-employed, professionals and gig economy workers. As GSE refinances dry up, many traditional lenders and brokers are aggressively adding non-QM programs to replace refi volume. During the refinance boom, most lenders were content to harvest the “low-hanging fruit” and were happy to cede non-QM to specialty firms, like Deephaven, Sprout and Angel Oak. What has definitely changed, as the market mix has shifted, is the interest in non-QM from traditional lenders and brokers. So, non-QM refinance may be a little more resilient. That’s because non-QM rates are generally 2 to 3 points higher than QM loans, and candidates for non-QM refinances probably aren’t being bombarded with refinance offers every time rates drop a quarter of a point. But it may not be as sensitive as the more traditional refinance market. Non-QM, like any mortgage product, is affected by interest rate fluctuations. Bao Huynh: In terms of borrower demand for non-QM, it’s still a little early to tell.
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