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Is the Time Right for Non-QM Lending?

LendingNon-QM (Non-qualified mortgage) is rapidly growing as mortgage bankers recognize the benefits of correspondent lending for growth. With refinance volumes drying up, originators are looking for alternative mortgage solutions to achieve their goals. By working with a correspondent investor offering non-QM and jumbo, your lending options will expand and the result is higher margin and additional volume that help provide a competitive edge in a challenging market.

Increasing Demand

There is increased demand now that the mainstream has embraced non-Agency via correspondent lending and those who are not working with an industry-leading investor are rushing to become aligned. Anyone still considering the idea should recognize that their competitors likely have correspondent lending options and are reaping the rewards of higher volumes, engaged production teams and wider margins that come along with them.

Benefits include ever-evolving, quality products such as jumbo loans, self-employed programs, and other alternative options. One of the best practices followed by many lenders is to have delegated and non-delegated underwriting options available through a partner that has years of experience in the non-Agency space.

Building Partnerships

When considering a correspondent partner, look for one that makes loan-level exceptions, has a distinct corporate structure, years of solid experience working with non-agency products, and is backed by a world-class operational platform that will help guide a positive customer experience.

Today, non-QM originations total roughly $20 billion per year, but we believe the non-QM market will grow to over $100 billion in the coming years. The market is seeing more and more innovative products backed by high-quality underwriting and responsible decision making. Now, national and regional lenders are both getting involved as they become aware of the value these products bring to the table.

A Growing Trend

The growing trend will continue, as was forecasted back in Q4 of 2017 during an annual MBA conference for lenders. One of the top takeaways from that conference was that non-QM activity would double in 2018.

Beyond the demand to sustain strong business growth, the market is accepting of it because stricter guidelines mandate borrowers prove their ability to repay their loan. Subprime loans extended pre-crisis did not require a down payment or proof to pay off debt.

Non-agency is performing well today because buyers have skin in the game with sizeable down payments. Fitch Ratings reports that “Of the $4.3 billion and roughly 11,000 loans securitized since 2015 where loan-level performance data is publicly available, only eight loans have entered foreclosure.” This is a game changer in today’s market because these are solid-performing loans.

Borrower Benefits

Correspondent lending divisions are expanding because of the significant number of people with past credit events who have improved their situation and are ready to fulfill their dream of homeownership. Self-employed borrowers who typically seek jumbo loan amounts are prime candidates to keep the pipelines full as well. The inclusion of jumbo offerings has helped the performance of correspondent lending.

Most correspondent lenders have been clamoring for a jumbo product to compete with national banks. Fortunately, the largest operators of non-agency products have well-executed prime products that are competitively priced so borrowers are no longer lost to large banks. The best-case scenario is a lender with a jumbo product that has consistently strong pricing, great service, and offers non-agency products.

Correspondent lending is a fast-growing trend not likely to slow down. At this point, mid-year, if you are still considering how to meet your business goals, non-agency correspondent lending is the answer. It is a fast-moving train that you will want to catch, so do not find yourself stranded at the station in 2018.

About Author: Tom Hutchens

Tom Hutchens is the SVP of Sales and Marketing at Angel Oak Mortgage Solutions, an Atlanta-based wholesale and correspondent lender leading the non-QM space for four years and licensed in more than 35 states. Tom has been in the real estate lending business for nearly 20 years.

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