Non QM reaps benefits from policy, market discipline: execs

Politics, marketing and organic growth within the borrowing public are providing momentum to non-qualified mortgage businesses, leading many in the segment confident of future prospects. 

While mortgage executives in 2025 have remarked that potential Trump administration policy changes, especially pertaining to government-sponsored enterprises Fannie Mae and Freddie Mac, would likely boost non-QM and other nonagency production, the market is growing due to other factors as well, a panel of leaders said.

"I think the growth prospects, independent of what the GSEs do, are good for non-QM, and unlikely to get worse," said Peter Simon, managing director at HPS Investment Partners at the Mortgage Bankers Association secondary markets conference in New York this week. Simon noted prospects could "potentially get a lot better" if the Federal Housing Finance Agency tightened credit standards at the enterprises.

"I can add that the minute GSEs tightened, we got more business," added Max Slyusarchuk, managing director of Imperial Fund Asset Management and CEO of affiliated lender A&D Mortgage, in reference to previous cycles. "And the quality of non-QM increases."

Disruption from the GSEs may be coming sooner than many expected. On Wednesday, President Trump posted on Truth Social that he was seriously considering taking the two enterprises public. His announcement came just two days after FHFA Director Bill Pulte said he would defer any decision on removing Fannie Mae and Freddie Mac from government conservatorship to the president. However, Pulte was noncommittal in his answers to questions about whether he would make changes to the GSEs' footprint in the market.

Contributing to non-QM momentum is the profile of applicants applying for mortgages that fall into the category, the majority of which consists of bank statement loans for self-employed borrowers or debt-service coverage ratio products for real estate investors.

"These borrowers are fairly sophisticated. They look at this as leverage more than they look at this as a loan," said Rudy Orman, senior vice president, third-party origination lending at Premier Mortgage Associates.

"It's the borrower that knows they're a real estate investor or the borrower that knows he's self-employed and realizes 'I'm going to pay a higher interest rate, but I'm saving all this money in taxes,'" he continued. 

For such borrowers, "this is not a rate product. This is features and benefits," Orman added.

Underserved borrowers "who don't know they qualify for a mortgage and can qualify for non-QM" also are contributing to the market, Simon said.

Loan performance and secondary market outlook

Tracking performance trends in historical data for non-QM loans over the past decade has proven challenging amid regulatory overhaul that transformed the market.

"Credit in this sector is very nuanced. We probably don't understand it as well as we do in the GSE market, where we've got 25 years of publicly-available performance data that covers the Great Financial Crisis," said Jeremy Schneider, managing director at S&P Global Ratings.

Uptick in delinquencies in cash-out refinances raise some concerns, panelists noted, but robust underwriting and home price appreciation appear to be keeping loan distress low and losses at a minimum. Simon credited secondary market players for the outcomes. 

"Investors who buy the bonds are a part of that. Rating agencies are part of that. The whole loan investors — they're in the first-loss position, so they're going to be very cautious about what risk they want to hold with an intent to hold it for as long as the loan exists," Simon said.

Insurance carriers are among the biggest buyers of residential mortgages, particularly whole loans. 

"A common theme is they're often private-equity owned so they're thoughtful about risks they're putting into their portfolio," Simon added. 

Alongside whole loan sales are regularly securitized non-QM pools. "You have to have both because a securitization could be volatile," Slyusarchuk said. 

"Insurance companies are a different source of capital. They're not going to be as concerned with liquidity like the securitization market is," Orman also noted, pointing out the benefit of having diverse sources of liquidity.

While non-QM has frequently been forecasted to expand over the past decade only to pull back when economic headwinds appear, companies in the segment have legitimate reasons to look forward with optimism, other experts in the space say. 

Non QM has become "much more well known to the general public, because people have been marketing these programs for 10 to 15 years," said Steven Schwalb, a managing partner at Angel Oak Cos. responsible for lending activity at its units, in a post-panel interview.

"You've got more participants getting bigger, and there's a lot more liquidity in non-QM," Schwalb said, noting that each year, more investors, warehouse lenders and banks get comfortable with it.