As the housing market normalizes, and with that gets more expensive and potentially difficult to finance, could we finally see a meaningful increase in non-QM lending?
The QM rule went into effect just over two years ago but has yet to really make a splash – most industry folks know about it, but it’s still far from being a household name like FHA, Fannie Mae, or Freddie Mac.
Our expectation around here is that non-QM loan will be a phrase everyone comes to be familiar with, similar to jumbo, conforming, conventional, etc.
Of course, thus far we’ve been holding our breath, but we realize it takes some time for new ideas to take flight.
Lots of Inquiries for Non-QM Lending
A new report from Altavera Mortgage Services could be a positive sign of things to come in the nascent space.
The company, which provides third-party residential mortgage origination services, said “approximately 35% of new client inquiries are for non-QM work.”
Altavera noted that one of its clients requested four additional non-QM underwriters and three loan processors to prepare for a jump in volume in coming months.
Other clients that are non-QM investors are reportedly hiring business development and sales staff, a “good indicator” of what might be to come.
“We’re seeing a rise in demand from originators for underwriting and processing support and from aggregators for pre-purchase review,” the company added.
Altavera president and founder Brian Simons also noted that lenders are getting more comfortable with the idea of holding non-QM loans on their books, while easing credit standards for all types of non-QMs aside from the subprime variety.
Higher Interest Rates May Usher in Non-QM Lending
One of the reasons non-QM production continues to be weak could be attributed to the low interest rate environment we’ve enjoyed for several years.
With rates so low on conventional loan products, there’s really little need for borrowers to look into alternative financing unless they have a truly unique loan scenario.
Once rates finally rise, it’s inevitable, Altavera Chief Operating Officer Debora Aydelotte sees non-QM lending increasing in popularity.
She said their clients are already originating all types of non-QM loans, from jumbos to those with higher debt-to-income ratios, along with asset inclusion loans and early foreclosure release loans.
Those asset inclusion loans use assets to qualify in lieu of income, and the early foreclosure release program refers to mortgages doled out before the mandatory (lengthy) foreclosure waiting period is met.
Of course, the latter category will probably become less common seeing that most homeowners were foreclosed on many years ago and already (or will soon) meet the necessary waiting periods.
Still, Altavera believes non-QM lending will increase by a “material margin” this year relative to 2015 numbers, which is great news.