Updated January 2018
Are Nonqualified Mortgages Considered Subprime?
The subprime mortgage boom in the early to mid-2000’s was different than what we consider “subprime” loans today. The truth is, if you asked 10 people what the definition of a subprime mortgage is today, you might get 10 different answers. In the broadest possible sense: subprime mortgages are mortgages that don’t fit in the traditional box – or in other words, cannot be wrapped up and sold or guaranteed by a GSE such as Fannie Mae or Freddie Mac. This would also include FHA, VA or USDA loans.
Many lenders are finding that they can offer “non-QM” mortgages and price them in such a way that the risk-adjusted rate of return matches what they are looking for. The way that this works is that any given lender can come up with a “non-QM” product and just hold it in their portfolio and service it.
In simple terms – if a lender wanted to offer a stated income product to people that couldn’t be guaranteed by Fannie Mae or Freddie Mac, they could still offer the mortgage product, and when people got the loan they would just make their monthly mortgage payment to the bank – because most likely the bank would not be able to sell the loan off – they would just keep it on their books.
This would be just one example of a non-qualified (or “non-QM”) mortgage – although there could be any number of loan programs a lender could offer, not just the stated income one used as an example.
Nonqualified / Subprime Mortgage Lenders
More and more lenders are finding that it makes sense to offer some kind of nonqualified mortgage program or programs – and they seem to be popping up all the time nowadays. This means if you spoke to 10 different lenders about a particular program you may only have 2 or 3 that have something like that program available – which makes it more important than ever to speak to multiple lenders when shopping for a subprime / nonqualified mortgage.
There isn’t really a standardized offering yet with non-QM loans, the more lenders that you talk to, the higher the chances you will have of finding a lender who can help you get the loan program that fits your needs. Getting matched with a lender – or lenders – is easy, only takes a few minutes and is completely free.