As the non-QM space gains popularity, more and more lenders are introducing non-QM products of their own. But not all non-QM lenders are created equal, and originators should pick their lender partners with care.
“I get emails from companies I’ve never even heard of claiming to be non-QM experts,” said Tom Hutchens, executive vice president of production for Angel Oak Mortgage Solutions. “My concern is that with this many players getting into the space, I’m not sure that they’re all as concerned with originating quality non-QM loans.”
Hutchens said that no two lenders are the same – and a lender with a great track record with other loan types isn’t necessarily prepared to tackle the non-QM space.
“I think brokers and correspondents need to do their due diligence and go with a proven entity that has a track record and the expertise to get these loans done – and done efficiently,” he said.
That efficiency is the hallmark of non-QM specialists like Angel Oak. Conventional lenders who have only recently entered the non-QM space might not make it a priority, Hutchens said.
“The most common type of lender jumping into this space seems to be agency lenders,” he said. “Rates have come down, and their agency business has gotten better – and their priority is their agency business.”
Many lenders new to the space can also be risky for originators because they’re not the end investor for the loan, Hutchens said.
“We hear from our customers that other lenders change the terms of the loan continually throughout the process,” he said. “Let’s say the lender says, ‘We can do this loan at 80%.’ They have to send it to their senior credit person, who says, ‘No way. We can’t do it at 80%, but we can do it at 70%. But then they send it to the investor, who says, ‘No way. We’ll do it at 60%.’”
Angel Oak operates differently, Hutchens said.
“When Angel Oak says we can do a loan, we can do it,” he said. “There’s a lot of lenders doing non-QM that have to send the loan to the end investor to get sign-off. We are the end investor.”
When choosing a non-QM lending partner, Hutchens said, originators need to ask one overarching question.
“First and foremost, how much non-QM volume do they do as a company?” he said. “If they’re a big, well-known lender in the agency space, how much non-QM have they really done?” Good agency lenders are touting themselves as non-QM experts – but I think there’s a fallacy there.”