Is non-QM lending the future of housing?

Lenders begin offering non-agency products

Lenders are starting to look into the unchartered territory of non-QM lending, seeing that it’s been over six months since the CFPB Qualified Mortgage requirements went into effect. And while it’s not vast, there is a definite demand.

Growth in the non-conforming market is needed since there is little new product development taking place with the agencies, said Chris Garagusi, vice president of mortgage capital markets product manager at BOK Financial Mortgage (BOKF).

“As such, there is a continued need to develop non-conforming products that fit specific borrower needs (QM and non-QM),” he said.  

He also noted, “As agency [Fannie and Freddie] guarantee fees have increased over time, the pricing spreads between conforming and non-conforming have compressed from historical levels and in some instances non-conforming pricing is actually better than conforming pricing.” 

There is currently $50 billion estimated in non-QM volume origination a year, which should create a significant net demand for private label mortgage-backed securities and whole loans, according to Ying Shen and Richard Mele, research analysts with Deutsche Bank [DB].  

However, they don’t expect non-QM volume to rise significantly above the $600 billion mark, and instead, given the dominance of GSE and FHA/VA and the exemption under the ATR/QM rules, the non-QM market is expected to be small.

Both also expect that non-QM loans will more likely be originated for prime high net-worth homeowners, which is what lenders are doing.  

“Most of our expansion with non-agency products has been in the jumbo arena.  We continue to evaluate non-conforming product opportunities in the marketplace and expect to bring several to market in the near future,” Garagusi said.

Meanwhile, Impac Mortgage (IMH) is also breaking into the non-QM market, offering 4 new products:  Alt-QM Jumbo, Alt-QM Agency, Alt-QM Income and Alt-QM Investor.

“We believe there is an underserved market for these programs where certain borrowers are finding financing for purchase or refinance is either non-existent or available with stringent and costly parameters,” Bill Ashmore, president of Impac Mortgage, said.

“We are not new to the non-agency space,” Ashmore continued. “We think this market is very similar to what we saw in 1995 when we first created Alt-A loans, and subsequently originated to $90 billion in that product from 1995-2007.”

In addition, back in June, Caliber Home Loans rolled out four types of new non-agency mortgage products.

“We are confident that our prudent underwriting guidelines, coupled with the way we have structured each of these products, creates a winning combination for both Caliber and the customers we serve,” said Joe Anderson, CEO of Caliber Home Loans. 

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