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Did non-QM just disappear from the market?

Citadel is the latest to pause originations as coronavirus wipes out a whole category

Update: Wednesday, March 25

The latest victim of the coronavirus might be non-QM lending. After seeing an increase in activity over the last two years, a number of wholesale lenders have suspended non-QM funding this week or tightened their standards on acceptable FICO scores.

Sprout was one of the very few companies still funding non-QM loans after Monday, but on Wednesday the company sent out the following message: “Please be advised that effective immediately we will temporarily suspend the funding of all loans until April 1. During this period we will also not advance any loans currently in process to the ‘Clear to Close’ stage, and we will not accept any new rate lock requests. 

“However, we will continue to accept new loan submissions and we will provide underwriting approvals, as well as accepting broker packages.”

Meanwhile, ACC Mortgage advertised that it was still funding non-QM loans. “While some lenders are pulling out of the non-QM business:  ACC Mortgage remains open for business. We are funding ‘non-QM’ loans and we have no plans to stop! We will always be 100% committed to providing you with the best solutions for your non-QM borrowers.”

Update: Monday, March 23, 2:45 pm.

Citadel Servicing Corp, who had been one of the few non-QM holdouts, announced this afternoon that they would be temporarily pausing loan originations for the next 30 days. However, the company was quick to point out that the decision wasn’t made because of a lack of liquidity. From the Citadel statement:

“Importantly, CSC is not terminating or shutting its operations. We have a strong balance sheet and are not experiencing credit or liquidity issues. Instead, we are making this business decision out of an abundance of caution, in order to comply with California Governor Newsom’s Executive Order, and recognizing the in-person interactions at loan closings and in the origination process. Current conditions require reconsidering these interactions. We want to make clear that to limit the impact on consumers, we plan to fund purchase money loans intended for primary occupancy transactions currently in our Funding Department with issued Closing Documents. We will also extend and honor Conditional Loan Approvals for applicants who continue to qualify under our guidelines upon resuming operations.”

The company also included a deadline, although with a caveat. “CSC
plans to fully resume normal operations after thirty (30) days or as conditions permit. We will be back, and with your continued support, stronger and better than ever.”

Update: Monday, March 23, 11:55 am.

Arc Home, who was still going forward with their non-QM program Friday, announced the suspension of its non-QM origination Monday morning. In an email the company stated: “The COVID-19 pandemic has created unprecedented conditions in the current credit markets and, in turn, has caused Arc Home to immediately suspend all origination related loan activity for the Arc Access program suite (Non-QM products) only. Non-QM loans in the pipeline will not progress further regardless of status.

“We believe in the value of the Non-QM market to the overall economy and to the strength of the US housing market. Additionally, we continue to be a leader in pricing, technology and service for agency and government products. We are continuing our Purchase Pricing Special and our focus on industry-leading turn times.”

Monday, March 23, 10:12 am.

On Friday we noted that Angel Oak Mortgage Solutions was one of the few lenders still offering non-QM, but tightening standards. This morning, however, the company announced it is pausing all loan activity. “Due to the constant shifts and the inability to appropriately evaluate credit risk, we are pausing all loan activity for two weeks. This includes fundings and any new loan activity.”

Caliber Home Loans on Friday announced a “temporary suspension” of accepting new applications for its non-QM product offering. “This was a difficult decision and we will work to continue our efforts in product innovation as the market recovers,” David Schroeder, executive vice president of third-party originations at Caliber, stated in an email. “Our commitment to all other products is unshakable, and our team is excited for what the future holds in supporting you through all markets.”

Story published Friday, March 20.

On Friday theLender was the latest company to announce that it was out of non-QM altogether, and put out this statement Friday afternoon on their website:

“With U.S. interest rates at historic lows, unprecedented Government stimulus, and the re-entry of the Fed into the agency and Government lending markets, we recognize that there is now not enough capacity in the agency markets to serve a hurting America. With our mission statement declaring that theLender is about ‘delivering customer-centric solutions to help clients realize their dreams,’ we have decided to put the full force of our platform behind the American people. To support the U.S. economy and be a beacon of hope during challenging times, theLender will be prioritizing QM loans for as long as America is in need.

“As of today, effective immediately, we are suspending all non-QM loans. That includes funding any further NonQm loans, locking or registering. We understand this is a burden for our broker clients and their customers but hope they understand this decision during this incredibly difficult time in America.”

Nations Direct Mortgage also shuttered its non-QM program. In an interview with HousingWire Friday, Martin Warren, managing director, specialty lending and servicing, at Nations Direct, described it as a “temporary exit” of the non-QM business. “We have a number of Wall Street and other large partners, so we’re going to wait it out and see what the appetite is. If our Wall Street partners want to enter again, we will.  In the meantime, we have a massive pipeline of Agency and FHA/VA business to keep us busy.”    

Orion Lending shut down its non-QM as well. Justin Simpers, a senior account executive at Orion, posted a video on the topic on Friday. “Non-QM loans are gone,” Simpers said in the video. “It is sad, but it’s just the hard truth. Liquidity — no one has it. Just like the crash in ‘07-‘08, non-QM is gone.”  

JMAC announced it was suspending funding on all non-QM products, effective immediately. In an email the company stated: “This news comes with great difficulty as our clients have used these innovative NonQM products for many years. We will continue to monitor market conditions so we can provide our partners the products you need.”

AmWest sent a statement to brokers that they have repriced their portfolio products to market-clearing rates.

Angel Oak Mortgage Solutions is one of the lenders still offering non-QM but tightening standards. The company sent out this message on Friday:

“Angel Oak is financially stable with a strong balance sheet. In order to allocate those resources most efficiently, we have made changes to our rates and guidelines moving forward. If you have active loans in the pipeline with us, please coordinate with your account executive to work through them. For all loans going forward, your account executive stands ready to assist.
“I want to stress that this is not a credit issue – these are solid loans that are performing. Unfortunately, the pandemic has caused a state of flux in financial markets that is impacting the entire real estate industry. Angel Oak was formed to provide access to capital for those shut out of the agency market. That mission will continue.”

Also on Friday, Parkside Lending communicated to brokers that they will not be approving any loans with a qualifying credit score of under 660 for all loan products. Previously, the company had been at 580 for government loans and 620 for conventional. Parkside also communicated that they narrowing their jumbo product offering and not offering non-QM.

These companies joined others who shut down non-QM earlier in the week, including Mega Capital Funding, which sent out a message to brokers that stated: “Due to retractions in the financial markets as a response to the coronavirus pandemic, and the uncertainty in the non-Qm space, MCDI will suspend funding on any and all of our non-QM and non-QM related products. This includes registering, locking or pre-locking loans. Any loan with docs signed, we will fund. Any loan without signed docs will be suspended for the foreseeable future or until market stability returns.”

HomeXPress Mortgage Corp. sent a letter that explained they would be “pausing all loan activity in order to complete a proper assessment of market conditions and allow us to create programs suitable for all constituents in the home loan process.”

Meanwhile, Citadel Servicing, which was purchased by HPS Investment Partners in February, continues its non-QM program unabated. Arc Home is also still in the non-QM business. But the evaporation of numerous non-QM funding sources means borrowers outside the traditional credit box have fewer options than ever.

This is a developing story and is being updated with information and quotes as they come in.

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