You can’t go anywhere these days without having a conversation about non-QM loans, the products that are being offered in the space, and the sheer number of borrowers who are able to repay but unable to fit into the conventional box.
As the non-QM market continues to grow, however, there’s also conversation around the ways it will change the rest of the industry in the near future.
Gagan Sharma, president and CEO of BSI Financial Services, says that the biggest change that he’s seen when it comes to the non-QM space is with regard to the securitization market, where the pace has picked up for non-QM.
“The securitization market seems to be much more familiar and aware of the non-QM market, and so that just allows for a lot more transaction activity,” he said. “Even some of the larger banks are securitizing some of the products that were historically held on balance sheets. So it’s just a greater sophistication and awareness of the market.”
He adds that as far as the securitization market is concerned, interest rates are now lower, and so there are more consumers who are able to afford to buy versus what was there maybe a year or two ago.
Even as lenders are coming up with new, innovative products to address the needs of their clients, affordability continues to be a key driver for the success of the non-QM space. As long as other economic factors such as income and job growth remain positive, then that affordability factor will continue to propel the market.
That’s not to say that borrowers will choose to go the non-QM route if they don’t qualify for a conventional loan; some people are just getting back on their feet after the financial crisis, and many may be hesitant to take anything but a conventional loan. Others are using these products as a gateway to home ownership, getting into a property and then look to refinance to a conventional mortgage. Regardless of what consumers choose, the lending community is trying to address a segment of the population that historically haven’t been able to afford homes until now. They’re giving options to people who have the ability to repay and who may prefer to be buyers rather than renters.
The non-QM space is having repercussions for the rest of the mortgage industry, even though it is still a very small segment of originations overall. There’s the broader question of the role of government in the realm of housing and finance, how much of those areas should be private enterprises, and how that will all play out in the months ahead.
“I think the non-QM market forms the core of whatever the private sector market will grow to be in the future. I think it’s a very important and necessary part of the market,” Sharma said. “It is, what I would say, putting the plumbing in place for future products. Depending on what [happens with] the GSEs and what agency reform looks like, the market can go further into whatever comes afterward and whatever reforms come from the government.”
As time marches further and further away from 2008, non-QM lenders are still having to work to reassure the public and industry insiders alike on the viability of these products, as well as the common sense underwriting strategies and philosophies behind lending decisions. Clearly what happened in the last decade is still in the back of people’s minds, or sometimes front and center, Gagan said, and overcoming that narrative isn’t going to go away.
“It’s an ongoing thing that we have to continue to work on,” he said.
Still, the industry is moving forward with a safe lending strategy, and the demand is there to support the growth of non-QM in the months and years to come.