What's next as banks tighten non-QM guidelines?

Other lenders poised to withstand ‘choppy’ waters, says executive

What's next as banks tighten non-QM guidelines?

Banks are adopting an increasingly conservative stance when it comes to mortgage lending, with many institutions specifically tightening standards for non-QM loans and supposedly riskier borrower types.

That’s according to the Federal Reserve’s latest survey of bank loan officers, which showed that while loans eligible for sale to Fannie Mae and Freddie Mac are seeing underwriting criteria remain largely unchanged, banks are continuing to clamp down on loans issued in the non-QM and subprime spaces.

The news arrives against the backdrop of a housing market cooldown and high-rate environment that shows little sign of easing.

The non-QM market remains a “choppy” environment – but lenders equipped with the tools to withstand that turbulence will be well positioned moving ahead, according to the chief executive officer of a prominent lender in the space.

Keith Lind (pictured top), of Acra Lending, told Mortgage Professional America that the company had navigated those hurdles to continue growing and expanding opportunities looking forward.

“For Acra, specifically, we continue to see this tailwind from what’s going on around us – whether it’s our competitors or just other factors with what’s going on in the mortgage space,” he said. “I think we’ve solidified our name here as a top non-QM lender in the country and I think that’s starting to pay dividends.

“We’re excited about what the rest of the year holds. But I do think it’s going to be choppy – no different than what we thought coming into 2024. But we’re going to stay the course. The good thing is our pipeline’s getting bigger, but we’re also bringing in more liquidity from new investors. So we’re excited about the rest of the year.”

Sector poised for growth as institutional lenders toughen stance

The growing need among borrowers for mortgage solutions that can’t be offered by banks in the current climate, Lind said, means brokers should take the time to familiarize themselves with the non-QM space.

“My message for people that are out there that aren’t doing non-QM: don’t be scared,” he said. “It’s not that difficult. It’s definitely a change from agency, but I think there’s a lot to learn for brokers or real estate agents. And there are a lot of solutions that non-QM provides that people just don’t understand.

“I’d say don’t be shy. Reach out to… non-QM originators that you’ve thought about… and learn the product. Because it’s not slowing down – it’s going to continue to grow. And I think it’s a nice alternative when the agency market dries up where people can make a lot of money.”

In April, Kind Lending executive vice president William Fisher told MPA that borrowers were increasingly viewing the non-QM space as a viable option as the prospect of securing a bank lending solution receded.

He expressed a “bullish” outlook for the future of the sector thanks to the inaccessibility of the conventional loan space and other factors such as a growing cohort of self-employed Americans with non-traditional income types.

How has housing affordability declined across the US?

Mortgage affordability crept out of reach for many Americans throughout 2023, with Redfin indicating that a mere 15.5% of homes for sale were affordable last year for a standard household across the country.

That marked the lowest percentage since Redfin started tracking the data 10 years ago, with surging mortgage rates a central reason behind the huge dip in affordability.

It’s also a stark contrast from just over a decade ago, when fully half of properties listed on the US housing market would have been accessible to the average family.

The volatility of the COVID-19 pandemic caused plenty of headwinds for the US’s lending landscape, and also helped make buying a home an unrealistic prospect for a huge number of would-be buyers.

Redfin said 40% of homes would have been affordable for a typical US family prior to the pandemic, and before slashed borrowing rates, pent-up savings and access to cheap credit helped spur an unexpected homebuying boom.

By 2022 – when interest rates began to tick back upwards and more buyers started to step onto the sidelines – that had declined to just 21%.

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