TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/1491913
26 | M R EP O RT FEATURE F or more than a decade leading up to the pan- demic, mortgage rates sat at a comfortable average of about 4%—occasionally dipping to 3.31% at lower points, and very briefly reaching 5.21% as a high. 1 Nestled between the housing crisis of the early 2000s and residual effects of the real estate market craze of 2020, this sets a relatively tame stage for the explo- ration of non-qualified mortgages (non-QM). Cue the mortgage rate pandemic plunge and subsequent boom in the refinance market, and every lender operating in the non-QM sector was pushed to see just how well their program could stand the test of a very turbulent time. As a result, lenders contin- ue to leave the non-QM space, and repercussions have caused mortgage brokers and originators some whiplash. But there are still creditworthy borrowers who need the flexibility of non-QM loans, and lenders able to meet those needs. Addressing the Market 2 022 marked the start of a slow- down in the housing market, which has only continued into the new year. According to sta- tistics provided by Freddie Mac, rates just about doubled from 3.22% to 6.42% in just 12 months, with a few months reaching right above 7%. 2 Refinances continue to account for less and less of loans originated, sitting at about 30% of all applications. 3 And according to a recent economic and mortgage market forecast produced by MBA Research & Economics, loan originations volume is expected to continue to decrease this year, although not as steeply as it did in in 2022. 4 So, what's the story here? Keeping a pulse on the market is a smart move. Many brokers and borrowers felt the sting of the non-QM sector in recent years as lenders took a step back to refine their expertise. Even as lenders begin to re-enter the space, what's still relevant is longevity. Can a lender go the distance? Because of the recent surge in mortgage rates and subsequent housing prices, working within non-QM can appear to be volatile. However, the market is beckoning some level of resilience and housing prices are beginning to soften. As this continues, borrowers will take advantage. Although this isn't the time for a lender to have all their loan originations and liquidity in one basket, proper program recalibra- tion set in motion back in 2020 should pave the way for oppor- tunity—more specifically in the non-QM niche. Just as purchase and refinance origination volume is expected to rebound, non-QM has already started to see an increase in market share from its all-time low of 2% in 2020. 5 Brokers erring on the side of caution when it comes to working with borrowers in need of a non-QM loan can find reassurance in the fact that stability still exists within the sector. Identifying Stability in Non-QM S ince the introduction of non-QM loans, many lenders have expanded their program structure to capture borrowers outside qualified mortgage (QM) criteria set by the Consumer Financial Protection Bureau (CFPB). They're assuming risk of a manually underwritten loan that qualifies a borrower who otherwise might not be approved based on conventional credit and ability-to-repay criteria. Manual underwriting has been around since well-before the induction of non-QM loans, and serves as an alternative to automated under- writing, which approves borrow- ers based on QM rules that help mitigate risk for the lender. True expertise in the non-QM niche means segmented dedication in both forms of underwriting, Stability Is an Essential Commodity for Non-QM Loans Amid recent market changes, and as lenders re-enter the non-QM space, borrowers are calling on brokers to establish smart partnerships. By Greg Austin