The challenges in today’s mortgage market have caused many originators to expand their loan product offerings outside of qualified mortgage (QM) criteria set by the Consumer Financial Protection Bureau (CFPB). They have embraced non-QM as a means to stay competitive and protect their referral base. The bottom line is that all originators need a wide array of products to compete.
Higher interest rates, shrinking Agency business and low inventory still threatens volume. Those who have adopted non-QM are seeing additional loans closed each month they otherwise wouldn’t have procured. Why is it that there are still many originators out there still reluctant to do them? After all, adding non-QM simply means access to a larger borrower pool and the opportunity to grow your business. Are you one of the originators still not sure? Maybe it’s time to take a deeper look into what non-QM actually means and how it’s moving the needle for your competitors.
Non-QM is a stable sector
Non-QM loans have been around for over a decade and continue to bridge the gap for creditworthy borrowers who fall outside Agency guidelines and the ability to qualify for a loan. Non-QM loans perform well, and the credit quality is sound. The fact that non-QM loans are not held to the same restrictions as QM loans does not mean that borrowers or lenders are putting themselves at risk. Non-QM lenders are held to checks and balances to protect themselves, borrowers and their originator partners.
Deephaven, with longevity and expertise in the non-QM space, has mastered manual underwriting that serves as an alternative to automated underwriting. We utilize common-sense lending and offer exceptions that enable a range of flexible funding options. Deephaven’s sales team strategically uncovers every loan option and exception to meet the distinctive needs of borrowers.
In addition to stealth underwriting skills, it is imperative to respond to changes in the market proactively. A non-QM lender like Deephaven has the ability to quickly pivot to meet market demands. The ability to do so enables Deephaven to remain stable and helps the industry thrive.
Originators successful in non-QM know it’s not just for fall-out situations
In order to truly grow volume with non-QM you have to actively pursue non-QM borrowers. It isn’t difficult when you realize that they are all around you in everyday life. Realtors, small business owners, gig workers, freelancers, real estate investors, CPAs, doctors and lawyers with their own practices all could be a non-QM borrower. Non-QM isn’t established simply because loans fall-out of Agency.
Non-QM is an established, mainstream sector because a large population of people don’t fit the profile of a QM loan. They need someone to start the application process for non-QM from the very start – not after a fall-out situation. The last thing a lender needs in this competitive market is the reputation for fall-out. Get it right the first time and watch your referral base grow. It can be true for non-QM too, but not if you have the right lender such as Deephaven. So where are these non-QM loans just waiting to happen?
Real estate investors build portfolios in every market condition
There is a large pool of borrowers who purchase regardless of market conditions – real estate investors. In 2023, 27% of all purchases were investor transactions, according to CoreLogic. DSCR loans are often a go-to loan solution for many seasoned investors because they know these loans to be easy to close and a low hassle option.
Today’s changing workforce increases the demand for non-QM
The U.S. workforce is changing. According to the Bureau of Labor Statistics, there are around 16 million self-employed in the U.S. today – and growing. During the pandemic a record number of entrepreneurs started online businesses. The number of small businesses continues to grow each year. Many of these entrepreneurs will miss traditional loan requirements for a number of reasons. One common reason is due to the tax deductions they are allowed to take. Based on prudent tax strategies, they can’t use their tax returns to verify income for a home they can well-afford. The solution is a Bank Statement loan which falls under non-QM. Bank Statement loans are one of Deephaven’s most utilized products due to the significant number of borrowers who need them.
Debt-to-income and credit events are increasingly high
Debt-to-income (DTI) ratios have become a common issue as rising interest rates have caused DTIs to exceed traditional limits. Non-QM options include products that allow for higher DTIs. The Asset Utilization feature allows borrowers to qualify solely on their assets or you can augment bank statement income through asset utilization to help qualify the borrower.
Lower credit scores aren’t always an obstacle when it comes to purchasing a home. It is always something a borrower stresses over because they don’t understand the options out there. Lenders who don’t offer non-QM probably turn borrowers away if their credit scores fall below Agency guidelines. The reality is that a seasoned non-QM lender can likely get that loan closed as non-QM products allow lower credit scores.
The bottom line
Creditworthy borrowers who require the flexibility of non-QM will always be around confirming that non-QM will always be in demand. Those who embrace and become experts will become the go-to experts for Realtors, borrowers, investors and referral partners.
The key is to partner with a lender like Deephaven Mortgage who is a true pioneer and leader in the non-QM space. Non-QM is as easy to close as Agency loans and originators are not expected to come to the table as experts. Deephaven Mortgage will teach you to become an expert while you close these loans.
There will always be tailwinds and headwinds in the mortgage industry. Non-QM can help you weather any market condition to ensure that your business growth is protected. Stay ahead of the competition positioning yourself as a go-to, reliable and adaptable source for all borrowers. The only way to know if non-QM can really do this for you is to start with one closed loan and see what happens. Deephaven Mortgage is ready to help you make that happen.
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