Non-QM misperceptions hinder originators’ volume potential and health of the mortgage industry

We were able to witness first-hand over the past 18 months that the demand for non-QM will remain high because there are always borrowers who cannot qualify for a mortgage loan without it.

Self-employed who can’t use tax returns to qualify or Jumbo borrowers who don’t meet Prime guidelines can’t purchase a home without non-QM. Our clients who get it are increasing their volume by utilizing our Bank Statement, non-QM Platinum Jumbo, no income Investor Cash Flow, and other non-QM solutions we offer.

Unfortunately, some originators who aren’t using non-QM tell us it is because they believe non-QM loans are the same as sub-prime ones that were issued prior to the financial crisis.

The fact is non-QM loans are responsible, good-performing loans that help the mortgage industry thrive. Our goal is to educate on the facts and help them grow their business.

Below are the most common non-QM myths and the facts that dispel them:

MythNon-QM loans are difficult to close and a waste of time

Fact – Non-QM loans can be as easy to close as Agency loans. It all depends on the lender. We’ve been doing this for over 8 years now and the reason why we are so successful in this space. Our loan application process is easy and we can issue CTC within two weeks depending on circumstances.

We have a very large base of approved originators who close non-QM with us every month – because we make it as simple as possible. More referrals come their way and they can realize easy earned commissions. 

The industry produced $25 billion of non-QM origination in 2019 with significant potential to increase volume and business growth. In fact, the industry is projected to grow to over $200B annually within the next few years. This type of volume and earning potential is time well spent for any originator. 

Myth Non-QM does not require ability to repay (ATR) and has little to no regulatory oversight

Fact – All borrowers, including non-QM borrowers, must have a documented ability to repay their mortgage loan. We are required to assess and verify ATR as outlined in the Dodd-Frank Act for every borrower during the process of qualification.

Regulations and underlying credit conditions are held to a high standard of scrutiny regardless of loan type. We adhere to all regulations as set forth by the law. Many sub-prime loans that were issued in the past would not pass underwriting guidelines today. 

Myth – Today’s non-QM borrower looks like the sub-prime borrower before the housing crisis.

Fact – The average FICO for our non-QM borrowers is 742 versus a score in the 500s back before 2008. With an average down-payment of over 20%, borrowers now have “skin in the game”.  Frankly, the profile of a non-QM borrower looks very similar to an Agency borrower. They are buying higher-priced homes and simply need a non-QM loan to close the deal.

Non-QM is making a difference in business growth and the bottom line for so many originators we work with. We’d like to see that happen for all originators. That’s why we strive to continue our mission to educate originators on the power of non-QM working with Angel Oak.

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