DENVER, Colo., April 16, 2017 - To paraphrase Mark Twain, “the reports of non-QM death have been greatly exaggerated.”
Those of us participating in the evolving non-QM market, while frustrated that it has not yet fully matured, are nonetheless confident in its inevitable development into a brisk and fully-fledged business. Our conviction is rooted in our understanding of basic market supply and demand as well as industry anticipation of a strong purchase market and increasing interest rates over the next few years, as confirmed by MBA chief economist Mike Fratantoni at the MBA's National Technology in Mortgage Banking Conference & Expo last week.
In other words, non-QM isn’t a bust. However, while a number of originators and buyers are poised to capitalize on the expected growth in non-QM volume, there are still a few challenges in the supply chain. Once these pieces are resolved, we expect the market will experience a “tipping point” and swiftly move toward broader acceptance and use of non-QM products.
Here are the top non-QM challenges Altavera has encountered as we’ve partnered with residential mortgage lenders and investors to deliver a variety of QM and non-QM loan origination and loan fulfillment needs:
Getting Everyone on the Same Page
One of the primary issues is attracting actors from the entire loan origination life cycle. As mentioned, there are already originators and buyers in the marketplace. However, warehouse lenders have been cool to the idea of non-QM due the uniqueness of the products. Beyond standard line approval requirements, warehouse lenders are typically requiring two and sometimes three additional outlets for the product before they will allow it on the line.
Becoming a Priority for Loan Officers
Another marketplace challenge is divided loan officer focus. We’ve heard from a few of the top non-QM lenders that their officers are already challenged by their efforts to prepare for major growth in the purchase market. Additionally, some loan officers may be reluctant to add non-QM to their repertoire because they don’t understand how to sell the higher interest rate, aren’t knowledgeable enough about the wide variety of non-QM products or simply find it too time-consuming to educate borrowers. As one aggregator put it, “it’s easier to originate two FHA or agency loans than school a borrower on a non-agency product at a higher rate.”
Educating Borrowers and Their Agents
Additionally, while we know there is a need for non-QM products (including borrowers rehabilitating their credit after a life event, self-employed borrowers who need a bank statement loan and foreign nationals, just to name a few), borrower education is limited. There’s a clear education opportunity for first-time buyers, and tenured buyers may need help overcoming their wariness of non-conforming products. Real estate agents are often the source of information borrowers turn to first, so educating agents may be the most effective way to increase borrower knowledge. Since agents frequently play the de-facto loan officer role, increasing their knowledge of suitable non-QM products can only improve lenders’ referral opportunities.
As we enter this expected bull purchase market, addressing these challenges must become a priority. Only with their resolution will we realize the full potential that non-QM lending represents.