The fact that agency volume continues to shrink is not new information. Many originators have seen the impact on their pipelines. The problem is that it is not getting better, and there is no solution in the near future. Interest rates are not going down. In fact, they just rose by 19 basis points in early October. This leaves millions of homeowners sitting on first lien rates they have no intention of giving up. These homeowners are potential borrowers who still need financing, and a significant number of them do not fit a conventional guideline box.
For originators who rely only on agency products, this presents a hard problem: fewer deals to chase and more deals walking out the door to competitors who can say yes. The good news is the market isn't dead; it just moved. It moved to Non-QM and home equity solutions to meet the demands in today’s market.
The Data: Where The Volume Is Going
Non-QM originators are on pace to top $170 billion in 2026, and home equity production is expected to surpass $150 billion. These are no longer niche segments but a core part of the mortgage market.
Optimal Blue’s latest lock data shows the shift clearly. While agency volume pulled back month-over-month, Non-QM spiked:
Loan type | Month-over-month lock change |
|---|
Non-QM | Up 8% |
|---|
Total lock volume | Down 2% |
|---|
GSE | Down 4% |
|---|
FHA and VA | Down high single digits |
|---|
Non-QM now makes up 13% of total lock volume on the platform. Those numbers match what we see every day at Deephaven Mortgage: when agency volume shrinks, the originators who keep growing are the ones with strong non-agency options.
The Problem: The Borrowers Who Do Not Fit Into Agency Guidelines
Self-employed borrowers, real estate investors, and households with complex income haven't gone away just because agency volume is down. A business owner whose tax returns understate cash flow is still buying a home. An investor is still adding rental properties. A household with irregular income still wants to tap into their equity.
When an originator has only agency guidelines to work with, these borrowers often hear “no” or “not yet.” They still need a solution, and the loan officers who can offer one are winning those deals.
Another challenge is that cash-out refinances are not the way to go in today’s rate environment. There has been a significant shift in how borrowers access their equity. In the first half of this year, more than half of all equity extraction came through equity products — not traditional cash-out refinances.
The reason is simple. Millions of homeowners have first-lien rates well below today’s market. No one is going to ask them to give up that rate to pull out cash. Originators without other equity products, especially those that allow alternative income options, are left with two bad options. They tell borrowers that “now isn't the right time,” or they watch those clients go to a competitor with the right product. Either way, the deal is gone. If you do not offer equity products today, you are effectively out of the cash-out market for a large share of homeowners, and that share will keep growing as long as so many borrowers hold low first-lien rates.
The Solution: Non-QM And Home Equity
Non-QM and home equity products solve both problems. They give originators a way to grow production in any rate environment, without waiting for agency volume to recover.
Non-QM opens the door to borrowers whom agencies turn away. Self-employed borrowers, investors, and households with complex incomes can qualify through programs designed around how they actually earn.
Closed-end seconds and HELOCs replace the cash-out refi. Borrowers keep their low-rate first mortgage and still access the equity they've built. When they use the funds to pay off higher-rate debt, they often lower their total monthly payments. Originators who have embraced equity products are now doing their cash-out business this way instead of through a cash-out first lien.
Both build relationships that last. A borrower who taps equity through a second lien today is a strong candidate for a purchase or refinance tomorrow. That is the kind of client who brings repeat and referral business.
The originators gaining share right now have done three things:
- Added non-agency and equity products to their toolkit.
- Trained their teams to spot the opportunities.
- Partnered with lenders who can execute.
Adopting non-agency products is no longer a nice-to-have. The borrowers are there, and the market data supports it. The only question is which originators will be ready to serve them.
