Just How Big Will Non-QM Lending Be?

We’re pretty excited about non-QM lending over here, but because it’s so new, it’s very difficult to determine how big it might become one day.

For the record, the QM rules went into effect in January of this year, so it’s still early, early days.

However, Deutsche Bank analysts already threw out some numbers regarding the potential size of this newly created niche market.

$50 Billion in 2014 Non-QM Loan Production

During year one, they only expect lenders to muster $50 billion in non-QM loan production, which by all accounts is pretty small, though nothing to sneeze at.

First off, one must consider the fact that mortgage lending has slowed considerably since booming during the last few years. There’s just a lot less business out there in general.

So it’s a tough year for non-QM to break out, especially as banks and lenders figure out what works and what doesn’t. There’s certainly going to be a bit of a cautious approach the first year or two.

Additionally, the full extent of QM won’t be realized until the temporary definition goes away. After that point, non-QM should really get a boost.

$400 Billion Annually Once the GSEs Aren’t Exempt

At the moment, many loans are exempt from the QM rules if they meet the guidelines issued by Fannie Mae, Freddie Mac, HUD, or the USDA.

Until these loans lose that temporary protection, the non-QM lending space probably won’t grow very large.

But once GSE and agency loans are no longer exempt from QM, non-QM loan production is expected to account for a decent chunk of the overall residential mortgage market.

The DB analysts see non-QM growing to a staggering $400 billion a year market, which no mortgage lender will be able to ignore.

It will probably consist mostly of high-DTI loans and interest-only mortgages.

They also believe that non-QM loans will be reserved for high-net-worth borrowers to avoid the potential liability of these types of loans if they happen to default.

Check out the lenders already offering non-QM loans today. There’s already some pretty unique stuff in the works.

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