Quick quiz: What is one of the fastest-growing sectors in the mortgage industry? Answer: The non-QM market, potentially growing by as much as 400% in 2019. Many new entrants jumped into the non-QM space this year, highlighting the opportunity to expand product offerings and hedge against changing market conditions through non-QM lending. Still skeptical?
Here are three reasons you should consider exploring non-QM:
- Non-QM is safe.
Let’s look at two sets of data – first, the loan characteristics: a credit agency recently noted that “in non-QM securitizations it reviewed, a weighted-average FICO score ‘rarely’ falls below 690 and the WA LTV is somewhere between 75% and 80%.” That is a far cry from some of the riskier subprime lending that plagued the market in the 2000s. Additionally, delinquency rates for our non-QM product are less than 2%. That compares favorably to current (industry-wide) conventional delinquency rates, which are around 4%, according to CoreLogic. Finally, investor appetite for non-QM is solid – experts recently estimated that non-QM RMBS issuance would double in 2019.
- Room to grow.
Our research shows that there is roughly $200 billion annually in unmet mortgage demand, a huge opportunity for lenders who are ready to think beyond the constraints of QM. However, we’ve found that many lenders and originators are unfamiliar with non-QM, despite the fact that roughly $10 billion was funded in 2018 and an estimated $40 billion will be funded this year.
- Better serve the demands of consumers
Not all of your applicants fit into the conventional box. Some may lack credit history, others may only be planning on living at a property for a short period of time, need a higher balance loan or want interest-only options. And don’t forget the self-employed. Data from the Bureau of Labor Statistics (BLS) shows that self-employed workers could soon constitute more than 20% of the U.S. labor market. There are a myriad of reasons why a borrower may want an innovative loan program. Can you afford to turn away business from these viable applicants?
If conditions change are you prepared?
Lending executives are responsible for ensuring their business thrives in any and all market conditions. What happens when the inevitable occurs, and interest/mortgage rates rise? Lenders who are too dependent on conventional origination volume will be hard-pressed to find new sources for income, and find it challenging to responsibly adopt non-agency products in a hurry. If you research non-QM today, take the time to find an experienced partner and build and train staff, not only will you have an expanded product offering to better serve your borrowers, you’ll be better positioned to weather any changes to the economy or mortgage market.