It is understandable that mortgage professionals are unsure about Non-Qualified (Non-QM) mortgages. The fact is that borrowers needing these loans are just as fit to repay them–quite often more so–than people who can obtain agency loans. The problem is that these loan products have been given the wrong name. A quick history can clear the confusion.
In the wake of the Great Recession, when the Consumer Financial Protection Bureau (CFBB) issued its final “Ability-to-Repay and Qualified Mortgage (QM) Rule,” they redefined the categories under which mortgage loans are underwritten by major institutions. This rule, which went into effect Jan. 10, 2014, institutionalized “Qualified” and “Non-QM” loans as distinct product lines. Even though the market collapse of 2008 and the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act had already eliminated issuance of high-risk loans, mortgage professionals still—often intuitively—compare non-QM loans to sub-prime loans.
In truth, the 2014 rule gave birth to an important and growing product known as Non-QM. However, these are nothing like the high-risk loans of the pre-recession market. Today, all borrowers must conform to strict underwriting requirements. Gone forever are the days when an individual with questionable credit history, no cash and non-verified income could buy or refinance homes.
The pool of potential non-QM borrowers in this country numbers in the millions. It includes self-employed individuals, small business owners and those who have had an unfortunate credit event. Even with sufficient downpayments, by the CFPB rule, these people cannot “qualify” for a loan issued by agency lenders due to reasons such as income verification, ratios or insufficient housing event seasoning.
Consider Michelle and Justin. In 2006, they easily qualified for a conventional 30-year fixed loan. Then Justin lost his job and could not find another. They struggled to make ends meet for several years, until Justin’s new S-Corporation got off the ground. Since 2013, he has earned more than $200,000 a year. Yet, because he does not pay himself a regular salary, Justin and Michelle can only buy a new house for their growing family by securing a non-QM loan for which they qualify by using bank statements.
Today, more than 15 million American families have similar income and credit histories. Non-QM loans enable them to buy new homes. Brokers who get a grip on these products will be doing a great service to themselves and thousands of excellent potential customers. To learn more, an Angel Oak Mortgage expert near you has details, visit AngelOakMS.com/Map.
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 Info@AngelOakMS.com.
This article originally appeared in the July 2017 print edition of National Mortgage Professional Magazine.