Opinion

Why non-QM has never been more important

Register now

Over the past six months, there hasnt been one day in which I haven’t felt nostalgic for a “normal life.” In spite of the blessings of a recovering economy and a healthy housing market, there are many things that just don’t feel the same and are still difficult getting used to.

One nice surprise has been the rebirth of the non-QM market, which has been a huge lift in more ways than one. Yet due to the market challenges in the non-QM space early in the pandemic, many originators have avoided reentering the non-QM marketplace entirely. While conventional business is at record setting levels, thoughtful leaders can capitalize on meaningful opportunities reemerging in non-QM products.

Non-QM loans are the lone viable option for the growing number of consumers who don’t fit the mold of the “typical” borrower. In fact, for many borrowers who might have qualified for conventional financing before the pandemic, non-QM loans are the only path forward toward homeownership.

That’s especially true for self-employed borrowers, who are growing in number. In California, for example, more than 2.2 million people were self-employed before the pandemic started. Unsurprisingly, self-employed borrowers are having greater difficulty qualifying for mortgages. Agency-centric lenders have made it more difficult for self-employed borrowers to qualify for a loan when applying standard underwriting guidelines. Non-QM bank statements and 1099-only products, however, offer a suitable and viable alternative for qualified prospects.

Non-QM loans also offer a particular opportunity for investors of one-to-four unit residential properties. There are over 18 million one-to-four family rental units in the U.S., and most are owned by local operators who own less than three properties. Historically, these mom-and-pop owners would utilize personal capital or hard money loans to finance their acquisitions. Investor cash flow loans, which rely on the cash flow generated from the property to determine income eligibility, offer an extremely viable value proposition for this underserved market.

While the non-QM market was virtually shut down at the beginning of the pandemic, it’s clearly experiencing a rebirth today. Leading this resurgence are several large lenders with decades of experience in alternative mortgage financing. These lenders typically have systems, processes and strategic partnerships in place to assist borrowers and real estate investors in any type of market.

Even though non-QM lending is clearly on the comeback trail, the opportunity to assist both property investors and good quality borrowers with unique circumstances is not being fully utilized. But we can all do something to change the picture. While the global pandemic may have put an end to what we feel normal life should be, it shouldn’t stop our ability to help borrowers who need financing now more than ever — and who can help return the housing market back to full strength.

For reprint and licensing requests for this article, click here.
Qualified Mortgages Originations Housing market Underwriting
MORE FROM NATIONAL MORTGAGE NEWS