What is Non-QM?

Here’s Why You Need Non-QM Now

To achieve and maintain success one needs to continually move forward with purpose. Wait too long to add Non-QM to your product mix, and you’ll likely get left out in the rain. Forward-thinking originators should be looking at the growing Non-QM market as a way to increase their business, by expanding their customer base beyond traditional ‘agency’ mortgage origination.

The National Association of Realtors says 2020 will see tighter housing inventory, and there’s always the specter of an increase in mortgage rates which would cause pipelines to dry up. Add this to the passing current of the refi wave and you’ve got a dip in conventional loan volume, which is the bread and butter of many originators. Not to worry... these economic trends have created a lending environment that’s ripe for Non-QM loans.


What is Non-QM?

In January 2013, The Consumer Financial Protection Bureau issued the Ability to Repay and Qualified Mortgage(QM) Rule to implement provisions of the Dodd-Frank Act that require lenders, before making a residential mortgage loan, to make a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan. The rule took effect in January 2014. Non-QM loans are those that do not meet these QM requirements — however, they must still meet each lender’s own underwriting standards for credit quality.

This guideline opened the door to a new breed of products to satisfy the growing demand for flexible loan options not possible with conforming loans. Becoming comfortable working with Non-QM loans starts by understanding that today’s Non-QM loans are high quality and that Non-QMs don’t necessarily mean high risk.

Mention Non-QM and many originators will say, “It’s too difficult,” or, “There aren’t any Non-QM prospects in my area.” Skeptics take note, more than $20 billion in Non-QM volume was generated in 2019. Industry-wide, it is extremely important to dispel these misconceptions and get the facts about succeeding with Non-QM. The consistent year-over-year increasing volume of Non-QM business indicates it’s not just a trend, but a product sector that’s here to stay.


Non-QM products meet a wide range of borrower needs

Non-QM provides borrowers with lending solutions for a variety of loan scenarios not possible with conforming loans. These days, a range of credit-worthy borrowers exists outside the conventional mortgage realm. This includes first-time homebuyers, borrowers with substantial assets but limited income, jumbo and super-jumbo borrowers, everyone who’s part of the new “gig economy” (also known as self-employed individuals), real estate investors, seasonal business workers, anyone who’s paid in a lump-sum for their work, and fixed-income retirees. The vast majority of these non-QM candidates have the means to buy a home and to repay a mortgage, yet, they’ve been turned down by conventional lenders because they have a non-traditional income stream, a higher debt-to-income ratio, or because they’re investing in multiple income-producing properties.


Non-QM Growth Opportunities

Plainly stated, adding Non-QM to an existing pipeline is the key to growth. Originators should be taking notice and getting educated today on the nuances of Non-QM. Don’t wait until prime volume begins to recede and everyone is scrambling for Non-QM business. And, it bears repeating — today’s Non-QM loans are of high credit and collateral quality.


Finding the Right Partner

A successful Non-QM business starts with choosing a lender who specializes in Non-QM programs and has demonstrated significant growth and success in this area. Other factors originators should look for in a Non-QM lender include:

- A range of loan programs to suit a variety of borrower needs.

- A well-honed exception process to accommodate requirements that may be needed to make a specific deal work.

- In-person and web-based training to help you quickly get familiar with programs and procedures.

- An automated underwriting system (AUS) that matches the ease and convenience of agency AUS tools that have been in place for many years.

- Free customizable marketing materials and a 24/7 self-service portal to provide program-specific flyers and brochures.


Take the First Step

Industry experts predict Non-QM growth ranging from four to ten times 2019’s volume by 2021. Brokers and bankers that embrace this set of home finance solutions have an opportunity to dramatically increase their origination volume and help secure their future in the marketplace. But, it takes a little forward thinking to see over the horizon of today’s plentiful pipelines. As hockey great Wayne Gretzky said, “I skate to where the puck is going to be, not where it has been.” So, even if you don’t know a thing about Non-QM, now’s the time to connect with a leading provider and find out how easy it is to expand your product offering.


Sprout Mortgage is the leading nationwide movement in Non-QM residential lending. Additionally, the company’s volume was $2.8 billion in 2019, up 89% from the 2018 yearly figure and more than seven-times the company’s 2017 total. Sprout’s loan programs and products are designed to provide lenders with a range of solutions to solve a wide variety of borrower needs for homeownership. Programs include Alternative Qualification, Moderate Credit, and Real Estate Investor loans. For more information, visit www.sproutwholesale.com or call 844-664-6100.