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Each year since the advent of the Qualified Mortgage (QM) and a consumer’s repayment ability being spelled out in TILA, the talk has been around the creation of a market for non-QM loans. Each year the talk gets louder, and the non-QM market grows a little bit more.
In the current home purchase market, with rates rising, housing inventories down, and mortgage business becoming harder to come by could this be the breakout year for the non-QM loan? Some, like Angel Oak Capital, and Impac Mortgage think so.
Both are expanding their non-QM offerings. The Non-QM market is now only about $50 million (3% of the market). With these lenders expanding, and others exploring Non-QM loans, this market is projected to more than triple in 2018.
This presents a new line of business opportunities for traditional lenders. These products offer more options for potential homebuyers to qualify for the money needed to buy their home. Non-QM offers products such as:
- Higher DTI loans (around 50%)
- Balloon Payments
- Interest Only Loans
- Terms greater than 30 years.
- Down payment assistance
The big difference is that the lender does not get the safe harbor from the repayment requirements under TILA. These are not the No-Doc loans of the past. They usually use some sort of limited documentation and are fully underwritten. You might call them traditional mortgages with a twist or two.
Borrowers include non-resident aliens and those with some minor prior credit events. For some reason, they just don’t fit in the QM box. To date, however, the non-QM loans are performing very well.
These loans provide a lender with a source of alternative financing they can offer to buyers rather than lose a deal.
Ironically, they are not all that different from the initial, limited doc offerings. They require a sound underwriting review to ensure the borrower’s ability to repay the loan.
It’s a matter of understanding the products, the target markets, and buyers, and then coloring within the lines. These are NOT the old pre-2008, sub-prime loans. These are sound loans made on sound decisions to qualified borrowers. They just stretch the envelope a little.
Quality and compliance is extremely important, with careful pre and post close reviews to identify potential defects and problems. With the market being somewhat limited, you don’t want to screw up one of these loans.
If you’re interested in expanding your business, you’ll want to check out these products. As with any lending, you need to tread carefully and understand the rules. Then, have the training, systems, and technology to do them right.
Non-QM might be just what you’re looking for…
