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3 questions lenders should ask before implementing non-QM

For agency lenders looking to expand, non-QM lending may be the way to go

With refinance volumes anticipated to decrease by 62% this year and many originators
experiencing layoffs, lenders are looking for a way to diversify their offerings with non-QM products and gain new business in order to maintain profits.

“I think non-QM could be another money-making product for all of these originators,” said Keith Lind, executive chairman and president at Acra Lending. “There’s wider margins in non-QM than agency loans, so you can make more money per loan than you would on the agency side.”

However, lenders should not jump into non-QM without preparation.

“You really have to know what you’re doing in non-QM,” Lind cautioned. “When you’re dealing
with investors, mistakes cannot happen.”

So, what do lenders need to know before adding non-QM to their product offerings?

How do non-QM loans differ from agency loans?

First, Lind said, lenders need to understand the difference between non-QM and agency loans. For one, they won’t be delivering loans to Fannie Mae or Freddie Mac. They’ll need to get comfortable with their capital partners – who are they partnering with and how well-capitalized are they?

Lenders should also understand that non-QM loans involve different processes than agency
loans.

“It’s a much more manual process on the underwriting side,” Lind said.

Loans need to conform to ATR, he added, and almost all non-QM loans need a third-party
review to make sure everything was done correctly.

Ultimately, “in the non-QM space, you’ve got to make sure No. 1 it was underwritten correctly,
and two it fits a credit box of an investor that’s willing to buy it,” Lind said.

What non-QM products are available?

It’s crucial that lenders understand the non-QM products they’re offering. There are several non-QM products in existence, but three of the largest for Acra, Lind said, are bank statement loans, investor loans and loans for foreign nationals.

Bank statement loans are growing in popularity as the self-employed population increases each year. Entrepreneurs and those working as part of the gig economy may not have the W2s required for an agency loan, but non-QM lenders can work with bank statements to help them acquire financing for a home.

Investor loans are also growing in popularity as more people are looking to make investments in real estate.

“People feel comfortable that the years of 2008 and 2009 are well behind us, and the guardrails are much better today,” Lind said. “Forty-five percent of our production is investment loans. We are very confident that that’s going to continue to grow.”

And for those interested in acquiring investment property from outside the U.S., there are loans for foreign nationals.

“There’s a lot of people that are very bullish outside the U.S. on real estate, so that’s about 10%
of our production,” he said.

What technology is needed?

Finally, lenders should prepare to add non-QM products by understanding what tech they may need to implement.

As an example, Lind noted that underwriting is a much more manual process for bank statement loans, but there is technology out there that can help streamline the process.

“You upload homeowner bank statements, and these technologies spit out an income form.
They’re looking for fraud and they’re incredibly efficient,” Lind said. “You can spit out a bank
statement in 15 minutes as opposed to spending three to four hours manually doing an offer.”

Lenders should also carefully consider what LOS they’re using in order to drive efficiencies and provide a satisfying and transparent customer experience.

Partnering with Acra Lending

“There are a lot of wrinkles to understand” in non-QM, Lind said, but Acra Lending is prepared
to help lenders make the transition.

“I think the benefit of working with Acra is that we do a lot of that hand-holding for them, and
education from start to finish,” he said.

Acra Lending is looking to double its production this year, from $2 billion of originations in 2021 to close to $4 billion in 2022. The company also recently launched its fix and flip platform and a small-balance multifamily product and is continuing to invest in better technology across the platform.

“We do want to be at the forefront of that, because we know that leads to better customer
experience and improved margins,” Lind said.

For more information on Acra and its non-QM programs, visit AcraLending.com.

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