Ellington Financial LLC fairly recently completed a $141.2-million securitization of non-qualified mortgages. It joins lenders who want to boost their revenues by making or increasing their production of non-QM loans.
What’s in store for non-qualified mortgages in 2018? How long will this strong appetite among lenders to originate non-QM loans continue? That being the trend, will this type of loans become more accessible to consumers next year?
The Year Ahead: Non-QM Mortgages in 2018
Genworth Mortgage Insurance asked 200 mortgage professionals about their perspectives on mortgage issues such as down payments and industry trends in the coming year.
- Almost half of the surveyed industry professionals expect to see an increase in non-QM originations hinged on a strong housing market. To quote the Genworth survey: “Forty-nine percent of respondents believe there will be a strong appetite among lenders for originating non-QM loans in 2018, suggesting that the housing industry is on a strong upward trajectory.”
- Forty-one percent (41%) placed lenders’ appetite for non-QM loans as average, expecting no significant changes because the housing recovery has been steady.
- Nine percent (9%), however, believed this demand for non-QMs to be weak.
- One percent (1%) of the surveyed professionals dismissed this appetite for non-QMs among lenders as non-existent.
These are projections ‒ it remains to be seen whether the strength in origination volume that non-QMs displayed this year will carry over to the next, or will this growth stabilize or weaken.
But with non-QM loans banking on being alternative mortgage products, the projected growth is not far from being a possibility.
Non-Qualified Mortgages, Revisited
Back in 2014, the Consumer Financial Protection Bureau (CFPB) released a set of guidelines in making home loans that are safer for consumers post-crisis called qualified mortgages.
Qualified mortgages or QMs are loans that a borrower should be able to repay. A QM does not have features such as balloon payments, negative amortization / interest-only payments, and high points and fees.
Non-qualified mortgages refer broadly to loans that go outside the definition or standards governing QM loans. Because these lenders make loans differently, non-QM loans appear in various forms.
For instance, non-QMs can be interest-only loans where the borrower only pays the interest portion of the loan for a certain period. While interest-only payments are not allowed under QM standards, lenders who make such non-QM loans keep them in their portfolio so borrowers can expect to send their payments to their lenders throughout the life of the loan.
Portfolio loans, as above loans are called, offer more flexible guidelines including alternative documentation to income and assets, higher loan limits, and more property choices. While these portfolio loans may be non-QM, not all non-QM loans are portfolio loans.
The way non-QM loans are designed, they target a more diversified group of borrowers, e.g. a self-employed individual, high-net-worth individual, real estate investor, multiple-property owner, or foreign buyer.
Non-QM loans remain an alternative to the existing array of standard mortgages. Speak with a lender to find out more.