Non-QM lending has disappeared from the market

Two of the last holdouts have bowed out

Just a few days ago, HousingWire asked the question, “Did non-QM just disappear from the market?” as many of the biggest lenders specializing in lending to borrowers outside the Qualified Mortgage lending box were pausing their activities due to uncertainty in the market.

The two main holdouts were Angel Oak Mortgage Solutions and Citadel Servicing, which both stated as recently as Friday that they were still in the non-QM lending business.

But now, those last two holdouts have bowed out, too.

Angel Oak, which has grown its non-QM business significantly in the last few years, said on Friday that it planned to continue lending, but with adjusted rates and guidelines. But that plan changed over the weekend.

On Monday morning, the company sent out a letter to clients stating that it plans to halt “all loan activity” for a period of two weeks.

“The pandemic has continued to cause turmoil in the worldwide economy,” Angel Oak said in its note to clients. “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.”

It was also thought that Citadel Servicing, another big non-QM lender that was purchased by HPS Investment Partners in February, would be able to weather the storm as well since it now had the financial backing of HPS.

But that changed over the weekend as well.

Citadel Servicing sent out a note on Monday stating that it also planned to shut down its lending operations, but instead of shutting down for two weeks like Angel Oak, Citadel is shutting down for 30 days.

The reason for the action is twofold, according to the company. The company is based in California, which just issued a statewide “stay at home” order that requires all residents to stay at home other than for “essential needs.” Therefore, the company is issuing a work-from-home mandate for many of its employees.

That, combined with the market conditions, are causing Citadel to back away from non-QM lending as well.

“In light of the COVID-19 developments, the recent announcement of California’s Stay at Home Order, as well as rapidly changing conditions in the financial markets and to protect the health and safety of our employees, our customers, and to maintain Citadel Servicing Corporation’s position as the Non-QM market leader, we have decided to implement a 30-day stay-at-home policy for the employees of many of CSC’s departments, and we are temporarily pausing loan originations for the next thirty days,” Citadel said in a note to clients.

The company states that the decision to pause its lending activities is not a reflection of the health of its business.

“Importantly, CSC is not terminating or shutting its operations,” Citadel said. “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.”

The company also notes that in an effort to “limit the impact on consumers,” it plans “to fund purchase money loans intended for primary occupancy transactions currently in our Funding Department with issued Closing Documents.” The company also states that it plans to “extend and honor Conditional Loan Approvals for applicants who continue to qualify under our guidelines upon resuming operations.”

The company also states that its servicing department will continue to operate throughout this 30-day lending pause.

“We value our relationships and regret that this may be a burden in this difficult time for all of us,” the company said. “CSC plans to fully resume normal operations after thirty days or as conditions permit. We will be back, and with your continued support, stronger and better than ever.”

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