HOW TO KEEP THE NON-QM LENDING LIGHTS ON

HOW TO KEEP THE NON-QM LENDING LIGHTS ON

So, if somehow a catastrophic event strikes again, what can the Non-QM segment do to avoid another business shattering pause? What needs to be done?

John R. Lynch, CEO and founder of PCMA Private Client, says changes have to be made to bring more stability to the Non-QM market. “I am in the business of following cycles and patterns, and it seems to be very consistent that we have a systemic shock to our financial system approximately every 10 years. The methods of which liquidity is brought to the market for origination of Non-Agency Residential Mortgages over the past three decades is one that needs to be rethought. The providers of NQM liquidity need to evolve to meet their obligation of stable capital for investment.

“I personally am on a crusade to move away from this outdated securitization model of financing RMBS, to a more modern way of financing risk without excess leverage and outdated risk assurance models that expose our markets to crippling margin calls and ‘Too Big To Fail’ institutions.”

EDUCATED CONSUMERS NEEDED

Katherine Gardner from Arc Home says there should be no hesitance from consumers in this segment if companies know what they’re doing. “We do not see consumer hesitancy, but we still see a large need for consumer education. It is critical for more brokers to engage in non-QM originations so potential borrowers can tap their buying power.

“There is likely a trillion dollars in borrowing ability untapped due to lack of product awareness. Brokers have the opportunity to gain significant market share in Non-QM originations. With rising interest rates in the future, we expect originators to invest their time in learning and marketing a more diverse product set. This will significantly contribute to the growth of non-QM.”

“We have found that any hesitation towards non-QM adoption is more of a lack of time rather than a lack of confidence. As rates rise, non- QM and non-Agency adoption will be key to remaining relevant in the marketplace. We anticipate that loan officers will use these offerings to differentiate themselves and reach more borrowers,” said Tom Davis, executive vice president of correspondent lending at First Guaranty Mortgage Corp.

ODDLY RIGHT TIMING

All of the experts interviewed said a pandemic is never desirable but the fact that it happened in 2020 made a difference.

Angel Oak’s Tom Hutchens said if this had happened back in 2014 when Non-QMs were first ramping up in force, things would have been drastically different. “I don’t know if it would have come back then. But now we had a record and history. Performance was strong. Loans didn’t implode.”

Robert Senko of ACC Mortgage agreed. “These loans performed which is why you’re seeing so much demand. There is a lot of capital chasing yield, which I think drives the interest in Non- QM.”

Adds David Adamo, CEO and founder of Luxury Mortgage, “The Non-QM market has proven to be quite resilient and this can be attributed to the obvious intrinsic value that this liquidity unlocks and affords to a growing b o r r o w e r segment that would otherwise have very limited sources of financing.

“Non-QM credit and pricing methodologies in general have responsibly and smartly evolved these past several years and this is proven in the relative performance of these loans to date,” he opined. “This is also further demonstrated in that Non-QM credit and pricing have largely returned to pre-pandemic levels today and in some cases are even superior to where they were one year ago. The prevailing expectation is that non-QM will resume its growth trajectory in 2021.”

DAVID ADAMO