The non-QM arena is more desirable than ever and opportunistic loan officers should get in front of it, industry experts agree.
An update on capital markets was the focus of the National Mortgage Professional’s Aug. 24 Non-QM Town Hall, hosted by NMP's Head of Engagement and Outreach Andrew Berman.
The downsizing and failures of large and regional banks over the past year along with the Fed's proposed Basel III standards present an opportunity for LOs to get skin in the game, according to Tom Davis, chief sales officer with Deephaven Mortgage and one of the panelists.
“Bank credit is at a 15-year low and we expect that to continue to contract,” Davis pointed out. “We’ve seen banks and credit unions pull back TPO platforms and products, exiting mortgage and warehousing. That's an opportunity for LOs and brokers to take share from the banks who follow the puck to where it's going and get in front of these changes.”
Davis participated in the California Mortgage Bankers Association’s western secondary markets conference earlier this month and offered Town Hall attendees a glimpse into the experience.
“I think the bank failures in Quarter One have fast tracked Basel III,” he said, referencing the proposed changes to capital requirements for banks. “We expect banks to pull back even further due to the proposal. I think it's important you work with an investor who has the knowledge in the space, and can help you take advantage of the market when it shifts over the next 12 to 18 months.”
John Wise, EVP of sales at Newfi Wholesale, agreed that any lender in the Non-QM space should have a plan in place to address the market to come.
“If you look at the most restrictive pieces of Basel III it's going to essentially force banks out of serving the underserved,” Wise said. “The most restrictive capital is going to be on high LTV loans…there’s going to continue to be expanded opportunities on the origination side. It speaks perfectly to non-agency products. There’s pain throughout the entire mortgage system today, but the independent mortgage broker is growing and there’s going to be more opportunities for them to close over the next 12 months.”
Davis encouraged LOs to reach into the Non-QM space by connecting with CPAs, attorneys, realtor and investor groups as well as Chambers of Commerce.
“People need to fill that refinance void, and they have no other option but to expand their product offering and serve other borrowers,” he said. “What investors are looking for today are strong performing assets that offer incrementally higher returns compared to the vanilla agency production.”
Brian Dacy, national sales director of ACC Mortgage, reported that his company has experienced more broker approvals lately than it has in a long time.
“We’ve seen a nice surge in volume in the past business cycle,” Dacy said. “Today, rates are higher but the borrowers who have been shut out are now getting much more attention than they have in the past. If you look back at 2019 we were the outlier, and now our products in the industry are front and center everywhere. Our matrix looks almost like it did pre-covid. The products themselves are unique; the performance is fantastic.”
While Non-QM continues to be on the rise, the conventional loan market has shrunk dramatically.
“The reason Non-QM business has evolved to this place in a real and healthy way is that we are creating loans that pay,” Wise said. “Real money institutions like insurance companies and pension funds are now investing directly in the asset, putting these loans on balance sheets rather than investing through a securitization. That gives me great confidence in the future of Non-QM because we’ve evolved from that side. It makes it a much safer place for originators and IMBs to originate into than it was two or three years ago.”
A live poll indicated that 32% of the LOs that attended had originated a Non-QM loan in the past six months. That’s with a reported 77,000 decrease in the number of loan originators since the peak of 2021.
The next Non-QM Town Hall is set to take place Sept. 21 at 2 p.m. EST. Topics covered will include the current state of Non-QM lending and finding a good Non-QM partner. Register here.
