Is America Ready For Non-QM Lending

Loan originators willing to meet the challenge of providing the same level of service on non-QM products that borrowers expect from traditional financing will make the most of this growing financial and real estate market.

Jumbo-prime spaces matured several years ago. Non-QM production of non-prime loans is still growing. Why? There is a growing demand for higher yields. Non prime has not grown as fast as ‘experts’ believed.

Many originators would like to originate alternative products like agency fall-out, bank-statement bridge and others. They find their clients are interested in the products while referring partners seek creative professionals.

Why aren’t more professionals taking care of the growing market?

Uncertainty Makes Professionals Look Away

Many thing lenders’ infrastructures are supporting the alternative programs properly. The result is a clunky and often, out of compliance effort.

Uncertainty leads to many mortgage pros shy away from originating non-prime loans. Others argue it is not the time and resources needed to learn new products.

Originators look for easier ways to roll out alternative non prime, but find their software doesn’t support the new products. Even the most widely used pricing systems are not often configured to price non-prime credit grades.

To find success in the new segment of the marketplace, originators must automate the non-QM methodology. New systems can be focused solely on the market and won’t force non-QM loans through an antiquated system.

Non Prime Challenges

There are other challenges lenders must contend with. First, non-prime loans usually have loan-level pricing adjustments at each credit step — or grade. The adjustments are based on both derogatory items and FICO scores. The system is at variance from prime loans which only use FICO with no credit gradations.

Pricing non-prime loans correctly require the originators to cross-reference rate sheets with the borrower’s credit documentation. This can take time and brings plenty of room for error. The whole process turns at a snail’s pace which many clients aren’t used to. Real estate and mortgage finance clients are used to seeing digital business resulting in faster transactions.

The second challenge is loans for ‘fix-and-flips’ have more variables like loan-to-cost ratios and rehabilitation budgets. The solution? Insist originators use specific non-QM pricing engines.

The Takeaway

Non-QM lending provides significant opportunities for driven originators seeking to build their business. Real estate agents and investors are forever searching for solution-minded mortgage professionals with access to unique programs.