HousingWire spoke with Mike Fierman, managing partner and co-CEO of Angel Oak, about the non-QM market.
HousingWire: Why is a healthy non-QM market important for the mortgage industry?
Mike Fierman: A healthy non-QM market is crucial for the overall mortgage industry and overall housing market. Mortgage lenders and brokers will need to utilize as many products as they can so that they can continue to grow revenue and recruit top talent. The non-QM market could equate to as much as $250 billion a year in additional loan production over the next few years. In order to keep pace with the growing and dynamic housing markets across the US, the mortgage industry needs a healthy non-QM market.
In addition, thousands of creditworthy borrowers simply don’t fit into agency guidelines. The growth of the so called “gig” economy and other self-employed borrowers require different product offerings. These borrowers are underserved and, in many cases, shut out of the housing market. Non-QM products can bridge the gap to allow these credit-worthy borrowers to purchase a home.
A healthy non-QM market means continued growth for the mortgage industry with programs that allow credit-worthy borrowers who fall outside Agency guidelines the opportunity to own a home.
HW: What are some common misconceptions when it comes to non-QM lending?
MF: The most common misconception is that non-QM loans are difficult to originate and take longer to close. The bottom line is that non-QM and non-Agency loans close just as easily and quickly as Agency. The process is simply different in that it requires a prequalification, but the rest of the process is very similar to conventional financing. The key is to work with a high-quality mortgage lender with experienced account executives.
There are still many originators who have not utilized non-QM and therefore the process is unfamiliar. It can be intimidating to understand at first, which further confirms the importance of a lender who specializes in and is a leader in non-QM loans. The right lender will help educate originators about potential buyer profiles, the mortgage products and loan process so they can market non-QM to referral partners.
HW: As the refi boom slows, why should lenders look to non-QM?
MF: Based on what we see at Angel Oak and industry reports from sources such as the Mortgage Bankers Association, refinance business is shrinking. Not too long ago, the challenge was keeping up with refinance volume. Now the challenge is finding business to replace refi volume. Non-QM can help maintain volume as originators pivot towards the purchase market.
Lenders need a full suite of products to recruit high quality loan officers/account executives and retain current staff. As well, with Fannie and Freddie limiting purchases on investment and second home-backed loan acquisitions to just 7% of their total portfolios, we know that that margins are shrinking on the Agency side.
Fannie Mae also announced that their underwriting guidelines will be tighter. All of this points to alternative mortgage loans and volume absorbed into the non-Agency / non-QM market. So, there are two issues, one being a refinance market that is slowing and the other not being able to count on Agency business alone to maintain volume.
HW: How has 2021’s market impacted non-QM, and what do you think the future holds for non-QM lending?
MF: The largest impact occurred in 2020 as credit markets were disrupted. In 2021, the credit market is very healthy. Non-QM is back growing exponentially and will continue to for the foreseeable future. We project we could see the non-QM market bringing in $250 to $350 billion a year.
It will take a few years to get there, but that is based on the trajectory we are seeing right now. The U.S. housing market is growing, and non-QM will own a growing share of the mortgage market.
The net of this is that originators who utilize non-QM could have a windfall opportunity in 2021 and for years to come. Increased bank lending regulations and restrictions means further growth for the alternative non-QM space.
The management team at Angel Oak Mortgage Solutions has been inundated with interest in learning more about non-QM as mortgage originators are seeing it as the means to capture purchase volume. It’s a great time to be in the mortgage industry – especially if you include non-QM in your offerings.