Operation within the niche sector dried up almost completely as market conditions placed constraints on liquidity. And right now, especially, history and credibility matter. Fall-out naturally becomes less likely, which means brokers and borrowers reap the benefits of a smooth process with less breaks in the chain. The appeal in being priced out rests with the result that the lender will, in theory, be around “tomorrow,” instead of getting played by the market. Pricing speculation is a dangerous game, and with the market moving as fast as it is going into 2023, being a price leader may not hold the strongest position as a lending partner.Ĭompetitive pricing may seemingly have less of an edge because it’s not the cheapest, but it offers the advantage of more secured longevity. Brokers should also look at how responsive lenders are to the market. However, stability in non-QM relies on more than a strong underwriting skill set. True expertise in the non-QM niche means segmented dedication in both forms of underwriting, equipping a lender to play the long game more effectively. Manual underwriting has been around since well-before the induction of non-QM loans, and serves as an alternative to automated underwriting, which approves borrowers based on QM rules that help mitigate risk for the lender. They’re assuming risk of a manually underwritten loan that qualifies a borrower who otherwise might not be approved based on conventional credit and ability-to-repay criteria. Identifying Stability in Non-QM Since the introduction of non-QM loans, many lenders have expanded their program structure to capture borrowers outside qualified mortgage (QM) criteria set by the Consumer Financial Protection Bureau (CFPB). Brokers erring on the side of caution when it comes to working with borrowers in need of a non-QM loan can find reassurance in the fact that stability still exists within the sector. Just as purchase and refinance origination volume is expected to rebound, non-QM has already started to see an increase in market share from its all-time low of 2% in 2020. However, the market is beckoning some level of resilience and housing prices are beginning to soften.Īs this continues, borrowers will take advantage.Īlthough this isn’t the time for a lender to have all their loan originations and liquidity in one basket, proper program recalibration set in motion back in 2020 should pave the way for opportunity-more specifically in the non-QM niche. Can a lender go the distance? Because of the recent surge in mortgage rates and subsequent housing prices, working within non-QM can appear to be volatile. Even as lenders begin to re-enter the space, what’s still relevant is longevity. Many brokers and borrowers felt the sting of the non-QM sector in recent years as lenders took a step back to refine their expertise. Keeping a pulse on the market is a smart move. And according to a recent economic and mortgage market forecast produced by MBA Research & Economics, loan originations volume is expected to continue to decrease this year, although not as steeply as it did in in 2022. Refinances continue to account for less and less of loans originated, sitting at about 30% of all applications. According to statistics provided by Freddie Mac, rates just about doubled from 3.22% to 6.42% in just 12 months, with a few months reaching right above 7%. But there are still creditworthy borrowers who need the flexibility of non-QM loans, and lenders able to meet those needs.Īddressing the Market 2022 marked the start of a slowdown in the housing market, which has only continued into the new year. As a result, lenders continue to leave the non-QM space, and repercussions have caused mortgage brokers and originators some whiplash. Cue the mortgage rate pandemic plunge and subsequent boom in the refinance market, and every lender operating in the non-QM sector was pushed to see just how well their program could stand the test of a very turbulent time. Nestled between the housing crisis of the early 2000s and residual effects of the real estate market craze of 2020, this sets a relatively tame stage for the exploration of non-qualified mortgages (non-QM). This piece originally appeared in the February 2023 edition of MReport magazine, online now.įor more than a decade leading up to the pandemic, mortgage rates sat at a comfortable average of about 4%-occasionally dipping to 3.31% at lower points, and very briefly reaching 5.21% as a high.
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