Changing the narrative: Non-QM vs. subprime mortgages

Panel clears up misconceptions about non-QM loans and gives tips on how to overcome them

Changing the narrative: Non-QM vs. subprime mortgages

Subprime mortgage loans, which caused the housing market crash in 2008, still carry a nasty connotation for many borrowers and brokers. More than a decade later, there’s a new unconventional loan growing more popular in today’s mortgage market despite its bad rap linked to the subprime debacle.

MPA recently held a power panel featuring four representatives from non-QM lenders to uncover how lenders can change the negative narrative about non-QM loans.

“If I talk to friends who aren’t in the industry or family, they instantly go ‘oh, that’s like subprime.’ So, it’s tough,” said Shane Colson, account executive at FundLoans. “I like to say things like ‘we help the self-employed’ because I do feel like we are much safer. We have so much more equity in our loans nowadays than we did pre-crash. It’s a different animal and to compare the two is just not fair, in my opinion.”

Although that still depends on who you’re talking to, said Acra Lending president Keith Lind.

“I think institutional investors that we speak to understand the difference between a loan originated today – if you want to call it non-QM or some sense of a private loan versus what was being done in 2008,” he said. “The majority of those loans were 100 LTV with no equity, and we know there were no guardrails around underwriting, there was no age concept of ATR. But there is today, and the attention to detail from investors buying these loans is much more stringent. There’s a much bigger lens and microscope on what’s going on and looking at due diligence results and having the concept of TPR firms.”

Read more: Putting the subprime ghost to rest

John Jeanmonod, regional vice president of sales at Angel Oak Mortgage Solutions, echoed Lind’s sentiments, adding that it all comes down to education: “It’s really about educating the broker world in the loans that are originated today versus what were originated in the mid-2000s. These borrowers are great borrowers. Our average LTV is in the low 70s, our average credit score is in the mid-700s, our average DTI is probably in the mid-30s. I would, and we do, lend our own money to these borrowers. As we continue to educate the entire world about who we are lending this private money to, we’ll get there.”

Will Fisher, executive vice president of non-QM and jumbo lending at LoanStream Mortgage, offered an interesting way of explaining the difference between the two products to borrowers.

“The way I describe it is to look at it as vintages of wine,” he said. “This vintage was made a certain way, and 10 years fast forward, this vintage is a certain way. Usually, when I explain it in that frame of reference, people understand it because there are so many more guardrails around things now, and that borrower has changed.”

“The days of the 80-20 wager, 100% LTV are gone,” Fisher continued. “Now it’s bank statements, self-employed borrowers, investors. That’s the quarter that makes up the non-QM space. And we do have other diversified products for everyone else, especially ones that speak to different credits, checkered past credit histories and whatnot. But the core type of borrowers is that 70% LTV high FICO borrower. I think we’ve changed a lot of minds, and Wall Street’s taking notice and understanding the difference between the vintages.”

Watch the non-QM power panel here for free.