2025 Lending Trends: What Brokers Need to Know About Non-QM Growth

Narrator  00:00:03

MPA talk, the American Mortgage Professional Podcast.

Fergal McAlinden  00:00:07

All right. Well, hello again, and thanks for joining us on another edition of MPA talk. I'm Fargo mcelhinden. I'm the editor here at mortgage professional America. And for today's episode, we are going to be taking another close look at one of the fastest growing lending segments of the US mortgage market. As we know, there are plenty of reasons behind the rapid rise of the non QM space, and we're going to be delving into those discussing what's in store for the market in the months and years ahead, and hearing from a leading lender about what brokers, allos and their clients should be keeping in mind about their options in that sector. So without further ado, I'm very pleased to welcome, first of all, a familiar face back to the podcast. Tom Hutchens is President of Angel Oak Mortgage Solutions. He's also joined today by Scott Grubele, Angel Oaks Senior Account Executive. So Tom is a leading voice in the Non QM market. With over 25 years of experience, he's played a key role in expanding Angel Oak's national footprint as a wholesale and correspondent lender in non QM. Scott is a top producer at Angel Oak who spent 20 years in the wholesale non QM space. He joined Angel Oak in 2016 and has been a key part of the company's growth and leadership in non QM lending. So first of all, great to have you both with us today. How are things with you?

Scott Gruebele  00:01:19

Excellent. Thank you very much.

Tom Hutchens  00:01:21

Great to be here Fergal.

Fergal McAlinden  00:01:23

It is great to have you both with us today, really looking forward to talking about all things non QM. Been such an eventful year for the overall mortgage market in general, but non QM, as we've spoken in the past, is really on our radar this year, on a lot of brokers radar as well. It's going to be great to talk a little bit more about that Tom. Maybe we'll start with you. If you could just maybe give us a background to the non QM market in 2025 Where do you think it fits into that overall market that I mentioned at the moment?

Tom Hutchens  00:01:52

Well, for it fits in, one of the unique words that you've already used is that the growing non QM market, and I think that's, that's really what we're most excited about non QM, is that is it is actually growing while, you know, agency and government loans peaked a few years ago, non QM is growing in 2025 and beyond. So we're excited about where it's headed. The changes, as many people know, we've been doing this for 13 plus years, kind of introduced non QM to the market back in 2013 so we're just excited where it's going. We started for many years spending time on education and awareness, and the education still continues, but the awareness of non QM is at the highest level it's ever been in our history. So we're just excited about 2025, and what lies ahead?

Fergal McAlinden  00:02:45

Yeah, it is, for sure. I think Tom maybe the last time I spoke with you, we talked about conversations that I had had with brokers and non QM was just becoming more and more popular with everyone that I mentioned, they were saying that it's going to be one of the biggest trends for the year ahead that you know, they're really tapping into it more and more often, and it's a question that I've kind of wondered about for the past few weeks and months. What is it about the space at the moment, like, what has changed over the past few years to bring about that type of growth? I mean, we always hear about, you know, self employed borrowers, the rise of the gig economy, things like that. But for you, what's been the biggest change over the years behind that growth?

Tom Hutchens  00:03:21

Yeah, that's a great question. We get asked it quite often, and it's really that more and more originators have gotten comfortable and now experienced with non QM. The first 10 years we were doing this, the agency business was very busy and keeping loan officers busy so they didn't really have time to pay attention to something new. Their phones are ringing off the hook and then post COVID 20 and 21 record low interest rates. Originators just they didn't have time really to do non QM. But in the last couple of years, in this rising rate environment, agency volume has plummeted, as we all know, and that's that's nothing new, and because of that, it's really forced the loan officers that want to succeed in this market to get to know non QM and to learn about non QM. So that's where the awareness has really come from. Because if you're an originator today in 2025 and you're not familiar with non QM, you're kind of pretty far behind the times. And we warned people, didn't we? Scott, we did. I mean, for years, we said you need to get to know non QM. Non QM is here to stay. It's not a fad. It's an important piece of the business. And Fergal, you just mentioned the gig economy, so many more self employed individuals across the country. If so, that's a big part of it. But it's also just this economy that we live in today, people are looking to generate income, and that just doesn't fit traditional lending standards set by the agencies. And that's really why non QM is going to continue to grow into the future,

Fergal McAlinden  00:04:54

Absolutely. And it's really interesting as well that there seems to be quite a broad growth of the sector too, like if. Not necessarily just one type of borrower that's that's becoming more and more accustomed to non QM. Scott, from your side, I'm wondering if there are any main types of borrowers that you've been noticing turning towards non QM recently, even over the past few months?

Scott Gruebele  00:05:13

Absolutely and Tom touched on it right with the gig economy, there's so many new, creative ways that people are earning money today, and a lot of it is on the self employed side. So we're seeing a lot of young entrepreneurs coming into the space and utilizing these products and programs and all the different options available to them, especially on the self employed side. We continue to see investors, more and more investors are being educated on the different non QM options available to them. So we see them flooding into the market, and then a lot of our return customers, because in the current environment, we have a lot of untapped equity out there, and we have a have a lot of return customers coming back to tap into that equity using some of our second lean products, refinance products, etc. So it continues to evolve. It's dynamic, and it's so interesting, because I think we will see non QM just continue to evolve as time goes on.

Fergal McAlinden  00:06:05

Okay, that's really interesting. So you mentioned second lien and refinance products. My next question is actually about the product type, Scott in particular that you're noticing at the moment, or that are especially popular among non QM borrowers. Has anything stood out for you?

Scott Gruebele  00:06:20

Yes, well, second liens I mentioned, I think that's probably the most popular right now. We have this dynamic out there in the economy. As I mentioned, we have record levels of untapped equity, and we also have, at the same time, borrowers homeowners, sitting on record levels of debt. So we see a lot of these borrowers coming to use our second lien products, home equity lines of credit, closed end second mortgages to tap into that locked up equity and be able to consolidate and put themselves in a better situation. And we offer a number of different options for that. We have a bank statement product that we can do that with. We have a full doc product that we can do that with as well. You know, the standard self employed products as well. We not only do we offer a bank statement loan, but we have deviations of a bank statement borrower for self employed borrowers, where we offer a 1099, only option, we offer a Profit and Loss Program. So those will always probably lead the way for us. Interest only is another product that I believe is one of the more underutilized products in the marketplace, because, you know, we're talking about investors, where cash flow is a priority. We're talking about self employed borrowers, business owners, entrepreneurs whose income is not fixed and will fluctuate. So having the ability to be locked into a lower monthly payment through an interest only product is very valuable to them. So those are the different products that I think we're seeing being utilized, like specifically, I would say, today, our second lean products are being unlocked the most.

Fergal McAlinden  00:07:45

Okay, great stuff. It's interesting to me, especially with the growth of non QM over the past couple of years, few years in the past, maybe it was something that brokers and ellos thought it's a nice thing to have, maybe something that they can kind of add to their business or something that's optional, but it strikes me that that's not really the case anymore. It's not something that you can have, or that's an option to have. It's something that you need to be tapping into all the time, especially with the growth of the space. So Scott, for you, how are loan originators and brokers missing out if they're not incorporating non QM into their toolkit and what they're offering to borrowers.

Scott Gruebele  00:08:21

That's a great question. I mean, we can just look at the numbers. Non QM is on track to probably break $150 billion in originations for 2025 so just by the sheer numbers, these products are now mainstream, and they're sought after at the borrower level, at the consumer level. So the bottom line is, an originator in today's market must offer these products, and they must align with an expert to be able to succeed in offering these products.

Fergal McAlinden  00:08:51

And for those brokers who maybe are not accustomed with this space yet, I mean, I doubt there are many at the moment, but for allos and brokers to become more accustomed with non QM sector. Is there anything Scott that you would recommend, any first steps they can take, anything that they should tap into to get a better idea of what the sector is about?

Scott Gruebele  00:09:09

Sure. Well, first, reach out to your local account executive. That would be first. But you know, in all seriousness, you want to align yourself with experienced lenders and experienced account executives who are experts and leaders in the space. And I always say the best way to learn about non current products and programs is take that first step and do it. Non QM loan, align yourself with a leader, and then take that step and do one of the loans.

Fergal McAlinden  00:09:35

Good stuff. You know what? This is always such a difficult question to answer, and I know I ask you this all the time about what's in store for the months ahead. I mean, it seems that things are changing by the day, never mind a week in the market this year. So it's very difficult to say. But are there any kind of trends that you have in mind for non QM or anything that you think is coming down the line that we should be aware of?

Tom Hutchens  00:09:55

Well, I'm sure anybody in the mortgage business listening now wishes I would say, Well, yeah, rates are coming way down. Down real fast. Thanks. But you know, that's what's so awesome about non QM, is that it's growing, even though the industry itself is still facing a lot of headwinds. You've got home price appreciation and home price affordability. Scott mentioned record credit card debt, but sitting on lots of equity. So to me, there's just so many opportunities as an originator that it's just imperative that you get to know non QM. We still hold a lot of seminars, and we ask people, How many in the room have originated non QM loan in the last one or two years? And it's still the minority. So people know about non QM, but they're not getting into it as deeply as I think they should. As Scott recommended, get to know a company, an account executive, and learn about it and start marketing it, you have to go find the business. It's not sit around and wait for the phone to ring because rates are at record low and everybody you know needs a loan. That's not the market we're in, and I don't see us being in that market anytime soon. So becoming that expert, and then once you've originated one, that's where we see originators take off and their business take off because they've been through the experience. They see how easy it is, and if they, like Scott said, work with Angel Oak has been doing it for so long, we can help originators take that and then go market it to their contacts and their databases and really make an impact on their volume and their business as a whole.

Fergal McAlinden  00:11:23

Yeah, interesting that you mentioned that I often hear brokers talking about non QM, and for them, a track record in this space, for their lender, is something that they really look out for, someone that's been in the business, someone that knows that, someone that's got a great reputation.

Tom Hutchens  00:11:35

So as you say, that really helps. Our average tenure at Angel oak, of our AES is over six years, and that means they've been doing non QM with Angel oak for over six years on average. So, you know, Scott's been here 10 years, so there's just so much experience here that we bring to the table that I just encourage originators to find their local account executive Angel oak. They'll help steer you through this process, because it's really not that difficult, but it is different than introducing an agency loan.

Fergal McAlinden  00:12:07

Absolutely. Let me maybe close things off today by just asking you both any kind of closing message for brokers, originators, even borrowers, about why they should be turning their attention to non QM if they're not already doing that.

Scott Gruebele  00:12:19

I think a closing message would be that as we see rates continue to decline, we're going to see more and more borrowers turning to tap into that locked up equity, as we mentioned. So those products are going to become more and more prevalent. We will see investor activity increase, I believe, and the non QM jumbo market that's been locked up for a little bit, I think we'll start to see some activity there. As agency rates begin to decline, we're going to see more and more lenders start focusing on that business, since that is what is their primary business, and at that point, having a relationship with a trusted non QM lender partner is going to be necessary. So I would tell loan originators, I would encourage them to take the opportunity now to align yourself with an experienced non QM lender, with an experienced non QM account executive, and put yourself in a position to succeed for what's coming in the future.

Tom Hutchens  00:13:10

Don't think I could add a whole lot to that. Well said Scott, thank you.

Fergal McAlinden  00:13:13

Great stuff. Okay, well, look, that's the perfect place for us to lead things off today. So thanks to you both Tom and Scott for joining us on the podcast. Great to hear once again, about the growth of the non QM space, which, as we know, I mean, it's clear that the sector is only going to continue expanding and create a lot more opportunities for brokers and borrowers and the months and years ahead. So we really appreciate you coming on, and hopefully we'll catch up soon.

Scott Gruebele  00:13:37

Thank you.

Tom Hutchens  00:13:38

Thank you. Fergal.

Fergal McAlinden  00:13:40

All right. Well, that is just about all we have time for on today's edition of MPA Talk, my thanks once again, to Tom and Scott from Angel Oak for joining us. Thanks to you for listening, and we will see you next time.

Narrator  00:13:53

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