One thing that stood out at the MBA Secondary Marketing conference this year was the growing appetite for non-QM loans. It’s a tough market, and the easy loans where borrowers neatly line up with qualified mortgage standards are harder and harder to find.
What’s left is a huge swath of would-be borrowers who are likely the future of the mortgage industry — atypical in some credit areas, but safe with the right loan product. That’s one reason the non-QM market is predicted to grow by 400% over the next year.
In the session on whole loan trading, the panelists listed a number of non-conforming loan types beyond jumbo, including bank statement loans, ITIN loans and condo loans. But several on the panel warned against equating non-QM with subprime.
“Non-QM is not what we saw leading up to the crisis,” said Michael Brenning, chief production officer at Deep Haven Mortgage. “These are clean, super-prime borrowers with one little thing about their profile. You will find the weighted average FICO is more than 700, all ATR compliant.
“Last year at this conference, where the market was, the securitized volume was $2 billion. Today it’s $5.3 billion. That still pales in comparison [to the overall market], but its two and a half or three times the growth for the fourth year in a row,” Brenning said.
Gary Watkins, whole loan acquisition vice president at First National Bank of America, addressed the No. 1 factor holding back more non-QM lending. “When you’re originating in conventional markets, you might have another investor. The fear in the non-QM world is that there won’t be someone to take it.” But he noted that there are now multiple points of liquidity and that fear is starting to recede.
The frustration with the qualified mortgage, implemented in 2014, is that it leaves out too many worthy borrowers, especially within the growing minority population.
In the session on housing finance solutions for the future, Gary Acosta, co-founder and CEO of the National Association of Hispanic Real Estate Professionals, pointed out that "approximately 78% of new households being formed nationwide are from diverse communities. They tend to have slightly different experiences and behavioral habits when it comes to managing finances.
"They may have thinner credit files, need low down payments, pool resources among families and multi-generations to make that first home accessible," Acosta said.
Several panelists noted the challenges of underwriting non-QM loans, which typically require a more manual process, and there was speculation on whether the Trump administration might be able to ease the standards somewhat. Jaret Seiberg, managing director of financial services and housing policy at Cowen Washington Research Group, said the Trump administration might make simplifying the QM rules a priority, but cautioned too much optimism.
"The biggest lesson we can take away is that things always take much, much longer than we all hope they would," he said.