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What is the competitive advantage for non-QM lending?

Find the need, fill the need

The introduction of the Qualified Mortgage rule in January 2014 brought about the concept of non-QM lending; loans that do not meet certain Consumer Financial Protection Bureau requirements.

Now that the QM rule is a little more than two years old, what is the competitive advantage for non-QM?

Within the first year of the rule taking effect, lenders started to come out, saying that they would originate non-QM loans due to the need. .

Mike Fierman, managing Partner and CEO, Angel Oak, reiterated a lot of similar points to those lenders when asked the question during Goldman Sachs 2016 Housing Finance Conference panel on the “Re-emergence of originator growth and innovation.”

 “Our product development started off as me originally applying for a refinance and I couldn’t get a loan,” Fierman said.

As a result, he realized that there are some product opportunities out there that need to be looked at.

“What are the good loans that make sense that aren’t being done?” he asked at the time.

Now the company sees growth in this area, nothing when he introduced his company at the beginning that they are building up their non-QM platform.

While the Federal Housing Administration is known to be a big competitor in non-prime, there are still a lot of reasons borrowers can’t go FHA, he explained.  

One of those reasons is loan size.

After non-QM, several lenders announced they would originate non-QM jumbo loans.

“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 at the time.

Impac Mortgage announced at that time that would begin offering the non-QM market 4 new products:  Alt-QM Jumbo, Alt-QM Agency, Alt-QM Income and Alt-QM Investor.

Other lenders that go the non-QM route, like W.J. Bradley, may face uncertain futures.

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