Will millennials spur a non-QM boom?

by Ryan Smith27 Feb 2018

Could the time be right for a non-QM boom? One expert thinks 2018 could be the year.

Conventional wisdom is that conventional loans – after becoming nearly impossible for credit-challenged buyers to get following the 2008 financial crisis – have been relaxing their standards in recent years. But real estate expert Steve Cook, writing for Inman, said that wasn’t entirely true.

“Despite conventional wisdom to the contrary, lending standards for mortgages to buy a home have barely budged over the past three years,” Cook said. “Since December 2014, the average FICO score for mortgages has declined only six points, from 728 to 722 in December 2017.”

But the millennial market could push non-QM loans to new highs, Cook said.

“As millennials’ incomes improve, but barriers like student loan debt and marginal credit histories continue to keep thousands renting, demand is growing for an alternative to QM loans,” he said.

S&P Global Ratings recently predicted that the market for non-QM loans could double or even triple this year as pent-up demand from underserved borrowers boils over. Non-prime specialist Citadel Servicing Corp. posted record month after record month in 2017, and traditional lenders like Carrington Mortgage Services are entering the field.

“We’ve been focused on delivering credit to the underserved borrower for over four years now,” Carrington Mortgage Services President Ray Brousseau told MPA recently. “We’ve been working the underserved strategy, and we think we’ve got it down really well now. This is not new to us at all – so (moving into non-QM) is a normal evolution.”


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