MReport December 2020

TheMReport — News and strategies for the evolving mortgage marketplace.

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Page 23 of 68

22 | M R EP O RT FEATURE W hen the COVID-19 pandemic began, every industry was caught off guard and businesses had to play the cards they were dealt. The mortgage industry proved to be no exception. Since then, the mortgage indus - try has made an impressive come- back as many enjoy a purchase boom and a refinance boom. The challenge is that the refinance boom is fleeting. Are you ready for the 2021 purchase world? The Market Today T he mortgage market is per- forming quite well, and many originators are busier now than ever. The majority of volume is due to refinances, which is bound to end sooner rather than later. The purchase market, however, is set to continue to boom well into 2021. The MBA announced that purchase originations will increase 8.5% to a new record of $1.54 trillion in 2021. In the same report, refinancing volume will be cut by almost half. Those who are not prepared for the post-refinancing market are at a disadvantage. If you aren't focusing on protecting your referral network by helping with purchase deals right now, you might stand to lose that business in the future too. If you are only counting on Agency business to pull you through, you may want to take a look at just how much circumstances have changed for many borrowers. Borrowers in Need N on-QM products might have been temporarily unavailable back in the spring, but demand for these solutions never went away. These products can be the only option for borrowers who don't meet prime lending stan- dards and, more recently, those financially impacted by COVID- 19. As a result, lenders knew the need for non-QM still existed, it was just a matter of understand- ing how they could make smart loans. Lenders prudently adjusted their lending procedures and tightened eligibility requirements, such as requiring higher FICO scores and lower LTVs in order to meet borrowers' needs without blocking them entirely from the homebuying process. Credit scores, FICO scores, and LTVs aren't obstacles so much today. Most of the pre-COVID non-QM products are back in the market, and bank statement loans are the most popular. They were the first to come back as they are among the most highly utilized loan products and typically serve borrowers with higher credit scores. Bank statement products serve borrowers who are near- prime or can only qualify for a non-QM loan because of their income documentation. The per - formance of the loans are closely tracked and confidence continues to grow. Investors in the second- ary market have returned, which is a crucial part of the market that is often overlooked. This con- tinued vote of confidence allows originators to further adjust products to meet the changing economic landscape and help more creditworthy borrowers. The beauty of non-QM is its flex - ibility and options that borrowers need Lenders acted fast, and it paid off for many. Brokers with Solutions H istorically low rates have been fueling an explosion in refinancing across the industry. However, like all refi booms, it won't last forever. In fact, it is projected to slow down substan - tially in the near future. The time to focus on the purchase market is right now—even with refinance volume that is almost too much to handle. Brokers who actively market non-QM have a better chance to quickly replace refi revenue when the boom dries up. Non-QM was one of the few sectors of the mortgage market that was grow- ing prior to the pandemic. As the economic impact of COVID-19 continues to abate, non-QM is a product that every origina - tor should have in their toolkit. Brokers who utilize non-QM now are finding they can tap into a new pool of borrowers and deliver innovative solutions that can help them grow or replace business. They can also feel good about knowing that lenders are making even more prudent and smart credit decisions in the wake of COVID-19. Many brokers are realizing that non-QM borrow - ers are coming back in force, and those who have the capabilities to service them could be at an advantage now and in the future. Investors Eyeing Yield S ince non-QM securitizations are backed by the secondary market, demand from this corner has also played a powerful role in the return of non-QM. Investors like hedge funds and institutions are critical to the growth of the non-QM sector. Their involve - ment provides necessary liquidity to lenders who can in turn make more loans and keep up with demand. Over the past decade, more and more educated investors have A Look Behind the Curtain Even as the nation continues to struggle through a health crisis, here's how the non-QM market is poised for a comeback. By Tom Hutchens

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