In an effort to counter margin compression and satisfy a new generation of homebuyers, lenders are looking to offer loan options that better fit the average borrower. HousingWire recently spoke with John Keratsis, President and CEO of Deephaven Mortgage, about the potential benefits of non-QM lending in today’s tight housing market.
HousingWire: In today’s tight market, margin compression is impacting countless mortgage companies. How can adding non-QM loan options help lenders make up for potential profit loss?
John Keratsis: Several pressure points are going on that affect lender profitability today. First, it is true that margins continue to be compressed in the conforming market primarily due to rising rates and increased financing costs. You also have a mortgage market shrinking from $4.1 trillion down to $2 trillion (by some estimations) due to the decline in refinances.
Then, as originators pivot away from refis to the purchase market, you still have more demand than supply for housing. Lastly, compounding the demand, the Millennial cohort, the largest generational population of all time, is entering their first home buying years.
Lenders can’t significantly impact the historically low inventory. So instead, they must find a way to win a greater share of borrowers. That’s what adding Non-QM does.
Suddenly the lender has relevant products for homebuyers they couldn’t serve before: the self-employed, business owners and entrepreneurs of all kinds. These groups represent a growing population of credit-worthy borrowers with strong FICO scores looking to buy the same properties as those who qualify for a traditional loan.
Higher loan limits also provide greater flexibility in higher priced markets. Offering non-QM enhances the chances of a lender providing the mortgage.
HW: While non-QM loans have historically only accounted for a small portion of the mortgage market, industry experts expect to see significant growth in non-QM lending in 2022 and beyond. What are the contributing factors behind this seemingly sudden increase in demand for non-QM?
JK: It really starts with forced awareness caused by the circumstances we just discussed. All of a sudden, you have loan officers and brokers out there hearing what the market is demanding. Whatever their clients are asking for, they must try and accommodate them as quickly as possible.
In addition to our popular bank statement loans, DSCR loans are also seeing a high demand for those getting into the rehab and rental markets. These products have been around for a long time. There’s just a much higher awareness of them now.
As borrowers self educate and become more aware of the options open to them, as non-QM becomes more mainstream, the demand continues to rise accordingly.
HW: How can Deephaven help prepare lenders and originators to add Non-QM products to their loan offerings?
JK: First, by making sure they understand the borrower profile and product set and how it’s differentiated. Next, it’s up to us to make them comfortable with the idea of offering something new. And the only way to do that is to help them every step of the way.
Yes, we offer training and webinars. We have online tools that make it easier to submit applications and expedite response times. We have a scenario desk ready to recommend the right product. We have in-house underwriters. Not only do they have the ability to make common sense decisions and exceptions quickly, they’re just down the hall from the account executive if an LO or broker has a question.
The technology is excellent and has significantly streamlined our communications and processing. But there’s no substitute for hands-on, ‘there for you’ guidance that lets new non-QM brokers and LOs learn as they go during actual transactions. Especially at the beginning.
Of course, guidance is only as good as the people providing it. Deephaven has been doing non-QM since 2012. Our underwriters, operations and account service teams are among the most experienced in the non-QM space.
We’ve been through the evolution and growth of non-QM since the beginning and have a book of business that is in the billions. We are well positioned to continue to scale as the market expands.
Learn more about the experts in non-QM and the services they offer at www.deephavenmortgage.com.