Why Futurewave bets on bank-focused non-QM loans

July 28, 2025 6:00 AM

In 2023, Steve Thomas started a new correspondent lender, Futurewave Finance. His three decades in the mortgage industry include servicing as the senior managing director of mortgage capital markets at the Federal Home Loan Bank of Chicago, as well as time at Fannie Mae.

From his time in the FHLB system, Thomas learned that community banks want to participate in mortgage lending, but only if there's a way to compete with both the banks and the nonbanks in the space. That's why Futurewave is providing non-agency products for its bank customers.

Steve Thomas, President and CEO of FututeWave Finance, is a seasoned executive with almost 30 years of experience in residential mortgage trading, community banking, affordable housing, and diversity and inclusion initiatives.

Hand-out/FutureWave Finance

But this is where Thomas is seeing the mortgage industry disconnect from what is happening in the market: product innovation has gone by the wayside.

Much of this situation might be a consequence of the product offerings that many accuse of causing the financial crisis and the legislative/regulatory fall-out as a result.

But Thomas, who is the CEO at Futurewave, argues that innovation can be accomplished and is needed in today's mortgage business.

Questions and answers are from a discussion with National Mortgage News during the Mortgage Bankers Association Secondary and Capital Markets Conference, which have been edited for length and clarity.

An update on what's happening at Futurewave

Thomas: Our client focus is banks. I say uniquely so. There's very few correspondent lenders set up to serve banks, and obviously we serve IMBs. The IMB mortgage market share is 70%, 80% so of course, we want to play with IMBs.

However, as a guy who spent 14 years in the home loan bank system working with what I call CFIs, community financial institutions, they need a lot of support. [A residential mortgage is] seen as a commodity, meaning you can't make a lot; it's not like a commercial property where you can earn a big fee. You can make a little bit of margin.

The fastest growing part of the mortgage market, we all know, is non-QM. By definition, a bank portfolio loan is QM. So they don't really have non-QM as a product line. What are we talking about? Bank statement loans, [debt service coverage ratio] loans. We spend a lot of time with CFIs and helping them build their non-agency mortgage [business].

Why the shift into non-qualified mortgages?

Thomas: We really started to compete in non-QM in early summer last year. In the bulk space, it's crazy, it's 20 bids to one package. There's more demand out there than supply. I looked at it and said, okay, the IMBs have plenty of liquidity. So do many insurance company buyers and private equity buyers, Wall Street securitizers of non-QM. So much demand, we need more supply.

CFIs could be an additional or new source of supply of loans to this robust demand that's out there, and they originate high quality. We learned that at the Home Loan Bank.

The delinquency rate has always been lower. I asked a banker, "Why is your default rate nil?" He said, "Well, I make the loan and I see the family on Wednesday, at soccer practice on Sunday," and that really is local lending.

The borrower is less likely to go delinquent when they know they have to face the guy who made him their loan and see him every week: "I'll default somewhere else. I gotta see him on Sunday, and I didn't make my payment for the last two months." That's embarrassing. So it's a great business model to build around community banks. That's what we're focused on.

Why the industry needs product development

Thomas: The main mission of the company is around, still, product development. I've been saying this, I founded the company in 2023; now we're two years later, and I still feel like I'm the only guy saying this, which is the mortgage market shifted dramatically, and not a lot of people either address the shift, recognize the shift, or taken advantage of the shift.

What happened to the secondary market?

Thomas: We were in a 40-year refinance wave [starting] in 1984. That's when the 10-year Treasury started falling, all the way through COVID, through 2022. It's incredible. It drove the careers of Realtors, loan officers, appraisers, everyone in the business.

I'm a trading guy, I can be detailed.

You have the rate effect, the 10-year Treasury, the mortgage spread, which the other components of the mortgage rate coming from the buyers.

Fannie Mae was founded in 1938. They bought loans on the balance sheet since 1938, Freddie since 1970. That ended right in 2008 with [the Housing Equity and Recovery Act].

Today, GSEs don't buy mortgages, but when I was in the portfolio, that's what we did, [and] spreads widened. We bought more mortgages, countercyclical. That's our mission, keep liquidity in the market.

You had the GSEs, you had the Treasury. Then it switched to the Fed, due to quantitative easing. It's almost like the government doubled down on that trade. Basically the Fed became a GSE. That was the primary focus of Fannie and Freddie portfolios to buy mortgages. The Fed bought all those mortgages.

So again, it all bottomed out at the same time, at the end of 2022. For the first time in my career, we don't have a government buyer of last resort. You don't have a GSE buyer, you don't have the Fed.

What happens if you don't have a buyer of last resort? Everybody's walking around saying, "Why are mortgage spreads 6-7%? They're going to go back down again." I'm like, "Are you nuts?" It's crazy to me, there's no buyer of last resort. Rates go down, but spreads widen because of the refinance risk, so you need a Fed or GSE to buy mortgages to bring that spread back down. That trade is over.

Why Thomas looks to product development

Thomas: It's a total inflection point since 2022 and that's why I started the company. We're in a whole new mortgage universe. I like to say in the refi market, rates matter. Now we're going into a long-term purchase market, products matter.

The life blood of a company is to build products for the market. We did agency, but we focused on non-QM. That's where the growth is.

ITIN, that's where the growth is right now, frankly. We're working a lot on exotic [offerings like] Islamic, Sharia compliant, non-QM products. Why are we working on it? Because there's a huge need in the market, and nobody else in this industry is even seemingly aware or working on developing that product.

Sharia compliant, you can't pay interest

, so we just roll the interest to the principal balance. When you service the loan, you can't say there's any interest being paid by the Muslim homebuyer.

That product's been a waiver with the GSEs, mostly Freddie, for 20 years. There's four lenders in the country that do Islamic lending nationally, two banks and two non-banks. We set up partnerships with two of the banks.

Set up a partnership with one last November, one in February, to help them, finally, after two decades, expand their Islamic lending, Sharia compliant, from being in a tight agency box for 20 years to jumbo, to non-QM, so they can grow their business, that's a big thing that we're working on.

How the secondary market can help product development

Thomas: We need more investors, though. The investors are slow. The frustrating part to me has been that more investors are not excited about product development.

Let me say this; all right, I get passionate, but hear me out. We talked about rates, we talked about all these product developments. Fannie and Freddie first had the accounting scandal in 2004, and then, of course, conservatorship. Since then, product development has been shut down, besides like credit risk transfer. So now we're talking 21 years.

Bill Pulte, from everything I've read in the press, he's not interested in building creative new products

for homeowners, so product development has been shut down for two decades and will remain shut down. No meaningful forward product development from the GSEs.

Then who do you have? You have Wall Street [but] they got their hand slapped. I mean, we got we got some fix-and-flip. We got [residential transition loans]. But there's no creative new product development.

In a purchase market, you need products, and no one's able to develop home Wall Street and GSEs aren't doing products. That's Futurewave is set up to do. We got to fill that void.

Thomas' thoughts on the 40-year non-QM loan

Thomas: With a 40-year loan, your payment is very little principal upfront. I personally like interest-only [mortgage] more than a 40-year.

With interest-only, the borrower can curtail or recast the loan. If they pay a little extra principal, you can recast the loan so the borrower's payment goes down every time they pay principal. But in a 40-year, you're locked into that amortization.

If you think about it, all you're doing is the borrower's paying you to manage their cash-flow, It's not really that innovative. Like, why is there a 15-year mortgage? You can get a 30-year mortgage and pay it down in 15. The borrower's just paying you to manage their cash flow. There's really no novelty to it.