The day we’ve been waiting for has finally arrived.
Almost immediately following the election of Donald Trump as the next President of the United States, the 10-year treasury yield shot up nearly 20 basis points and has continued to chart a steep trajectory throughout the following weeks. As expected, this movement slashed mortgage refinancing activity nearly in half.
Considering the swift disappearance of refinances from the market, lenders that heavily relied on refinances to create volume are now scrambling to generate new business. The recent interest rate hike announced by the Federal Reserve on Dec. 14, 2016, will only accelerate this trend. With President-Elect Trump set to take office in January, it’s no longer a question of “if” the Fed will continue to raise rates, it’s a matter of “how fast.”
Players that leaned on refinances in the past must now seek out other areas of the mortgage market to replace the lost volume. A natural place to look next is in non-QM products. These loans should benefit immensely considering their ability to provide lenders with product diversity and a new demographic of customers.
As the industry leader in the non-QM space, our advice to these players is simple: Do not delay. Begin adjusting your business models now to offer non-QM products. It will take some time to develop the relationships, new clientele and proper know-how to offer and actively market these products to your customers, so get started immediately. Acting quickly will minimize your lost business as refinances continue to disappear.
Also, the market for these products could further benefit from a softer regulatory tone from the Trump Administration. Regulatory relief could expand the credit box for non-QM products and increase lending opportunities to a wider range of individuals currently without access to financing.
But don’t fret, non-QM mortgages look nothing like they did in the pre-crisis era. Non-QM loans are made with tight ability-to-repay requirements and 10 to 20 percent downpayments. Not to mention, the average FICO score of a non-agency loan today is 680, up from 580 in 2006.
Now is the time. As interest rates continue to rise, partner with experts who can help you find success with non-QM products today.
Tom Hutchens is senior vice president of sales and marketing at Angel Oak Mortgage Solutions, an Atlanta-based wholesale/correspondent lender licensed in more than 35 states and operating in the non-QM space for over three years. Tom has been in the real estate lending business for nearly 20 years. He may be reached by phone at (855) 539-4910 or e-mail [email protected].
This article originally appeared in the January 2017 print edition of National Mortgage Professional Magazine.