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Nonqualified mortgage lenders made serious strides at the end of 2020 to put themselves in a position for success in 2021, following a stall in March 2020 due to the COVID-19 pandemic. Angel Oak Mortgage Solutions' executive vice president, Tom Hutchens, told The Washington Post what happened during the stall, how non-QM was able to come back and also explained why the refinance business can't be the only focus for mortgage professionals.
Hutchens told the publication that his company is about 90% back in terms of non-QM lending, however, there are still some products that they are holding off on as they look at how the economy has been responding to the recession caused by the pandemic.
"There were two factors. The first was investors that invest in the non-QM market do that through the bond market, through securitizations," said Hutchens when asked what happened to non-QM during the height of the pandemic. "In March 2020, there was a worldwide flight to cash, regardless of non-QM, commercial, whatever bond bondholders owned, they were cashing them all in. I think people forget; we didn’t know if we could get food, we didn’t know if we could get toilet paper again. It was just crazy times. The bond market froze, and the bond market is what the non-QM market is built around."
"The secondary reason is that with non-QM loans the performance is not guaranteed by the government, which is what makes them non-QM. We, meaning really the entire market, we were not able to really determine somebody’s ability to repay because government was shutting businesses down, shutting industries down. We don’t have a government guarantee. So if we give a loan to a borrower on Monday and the government shuts their business down on Tuesday, that’s not good for us."
Hutchens was asked about the refinance boom caused by increasingly-low mortgage rates and whether or not lenders are just focusing on refinances while pushing products such as non-QM loans to the side.
"Our industry has learned over the years that building your business on a refi market is shallow. It’s going to crumble at some point. The good originators never take their eye off the purchase market and non-QM is a purchase market product," said Hutchens, according to the report.
"I would say you’re not going to get [non-QM loans] from the biggest of big lenders. But the mortgage brokers and the independent mortgage bankers, they participate in non-QM every single day. So I think the only thing that you would be ruled out of is maybe the online lenders."
As for what the future holds for non-QM, Hutchens remains slightly cautious but optimistic.
"We’ve always considered the non-QM market to be about 10 percent of the overall origination business. Now 2020 was a little odd because of the influx of refinances but in a normalized market that’s where we’re working toward. We’re not near that," said Hutchens. "We have so much growth opportunity. Certainly, you can’t underestimate the overarching economic factors and the pandemic factors. But in general, we feel like we’re back on track and the industry is back on track to make non-QM that 10 percent of the market that it will be at some point. We expect 2021 to be a huge year in the non-QM space."
Click here to read more from The Washington Post's chat with Hutchens.