What Statistics Say About the Growth of Non-QM LendingThere is no doubt that the Non-qualified mortgage market was on the downside during the early part of the covid 19 pandemic. The good news is that the market began to experience a change in tide in the later part of 2020, did well in the early part of 2021, and experts have inferred a continuous growth even in 2022. Data from the market reports in 2020 indicates that the Non-QM market closed at about $18.9 billion, which is reasonably a good one. According to Steven Schwalb, a financial service expert for over 20 years, the Non-qualified mortgage is projected to reach $200 – $300 billion per annum in the coming years.
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The following factors back up the projected boom in the Non-QM sector
- Bank lending restrictions coupled with regulatory bodies – Fannie Mae and Freddie Mac are getting tougher on borrowers. The regulations disqualify several borrowers hence increasing the number of denied mortgage applications. The Non-qualified mortgage now serves as an alternative to the rejected loan seekers.
- During the pandemic, several individuals lost their jobs. So, many have turned towards entrepreneurship and are self-employed. Unfortunately, Fannie Mae and Freddie Mac regulations do not favor the self-employed largely; hence they turn to Non-QM as an alternative. The number of self-employed is drastically increasing in this post-pandemic era, which signifies a boom in business for the Non-qualified mortgage sector.
- The reduced rate of refinancing has increased the demand for huge loans. Since the GSE regulations cut out several loan seekers, they naturally turn to Non-QM for loans.
Peculiarities involved in processing Non-QM loansJust as the traditional mortgage loans have their processes, so also the Non-qualified mortgage. Although the Non-QM process is not entirely different from the traditional process and shares some things in common, like the ability-to-repay rule (ATR), its process has some peculiarities. You will need a mortgage processor and an underwriter. The mortgage processor runs a check on the borrower’s application and documents to ensure they are complete before sending them to the underwriter. We should note a few peculiarities in this process
- Lenders do not have to worry about being insured by VA, FHA, USDA.
- The maximum debt to income ratio is 50%, coupled with compensating factors.
- There is a measure of flexibility in the underwriting process. Here the underwriter can apply discretion in cases where the borrower exceeds the debt to income ratio.
What lenders need to do to be prepared for the surgeGoing through the detailed statistics and analysis, you will see that a surge is on the way. The Non-qualified mortgage sector has proven to be an area of growth in the mortgage industry and take part in the forthcoming harvest. Several lenders are making entry into the Non-QM sector, but we can ask, are they prepared? In a bid to optimally capitalize on this growth and forthcoming surge, lenders have to do the following;
- Get the right partners: A wrong partner will make you lose out on opportunities. You will need to have partnerships with service providers that can support you in relevant areas to ensure the smooth running of the business. Hence it is ideal you choose partners with a wealth of experience in the industry.
- Use the right approach: It’s high time we embrace the technology train. It would be best to handle Non-QM processes and underwriting applications with modern and updated technology.