Non-QMs Opening Up Again

Non-QMs Opening Up Again

More lenders returning as capital starts to loosen for the segment

Slowly but surely the non-QM credit continues to claw its way back. Their volume at one point had dropped almost 60% from February but loosening of capital is turning things around.

As Mitch Ohlbaum, real estate broker and president of Macoy Capital in Beverly Hills, California, told Bankrate “There was no secondary market to purchase these loans and the banks can only hold so many on their balance sheets. In fact, there was no secondary market for jumbo loans, non-QM loans, private loans or much of anything to be honest.”

Citadel Servicing Corporation resumed its origination of non-QM loans in late July. They were suspended in the wake of the COVID-19 pandemic. Keith Lind, Citadel’s executive chairman and president, told National Mortgage Professional, “We recognized there was a need for non-QM programs in the market, especially in uncertain times like these, and as we have seen the key sources of capital such as our capital partners and the securitization market restart, we decided it was the right time to resume originations.”

Quontic re-launched its non-qualified mortgage products for one-to-four family owner-occupied home loans, as well as non-QM loans for one-to-four family investors using a non-traditional debt service coverage ratio. These products are available through Quontic’s wholesale lending division.

In mid-July Bankrate reported jumbo mortgages plunged 57% from February 2020 until now due to the COVID-19 pandemic. As unemployment numbers increased, lenders became worried about borrowers’ ability to repay their loans.

However, despite tightened requirements in the market, Joel Kan, assistant vice president of the Mortgage Bankers Association, revealed that a segment of the population is receiving jumbo loans. “Those who are creditworthy (who have high credit scores) and meet the larger loan balance are still able to find some jumbo loans out there,” said Kan, according to the report.

NON-QM ALTERNATIVES

Observing the void (which is not yet entirely filled), some lenders offered alternatives. LoanStream Mortgage expanded its product offerings to provide an alternative for non-QM borrowers. The company increased some of its programs including Loan to Value up 85%, Debt Service Coverage Rate LTV’s to 80%, credit scores down to 640 and loans of up to $3 million.

“We were one of the first to provide financing back in 2013. We continue to be committed to the non-QM space,” said LoanStream’s CEO Rabi Aziz. “Things have changed; that’s for sure. The number of loans in forbearance, companies stuck with old product, and challenges related to warehouse financing will plague the space for a while.”

As we have seen the key sources of capital such as our capital partners and the securitization market restart, we decided it was the right time to resume originations.

HOUSE CLEANING

Citadel said it used the pause in origination operations to accelerate planned investments and improvements in key areas. These include better technology on both the origination and servicing side of the business as well as upgraded guidelines and processes, which in many cases have been modified to better suit the current market and the changes in many customers’ financial situations.