When non-QM lending meets tech - how to make it work

The non-QM market has been through a challenging period - and now, technology may hold the key to elevating it once more. In this interview, Gregory Meola, managing director - head of business development and strategy at Acra Lending, looks at the present non-QM landscape, how to improve the customer experience, his company's strategic approach to technology, and what to look for from a lender partner.

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Paul: [00:00:08]  Hello, everyone, and welcome to the latest edition of NPA TV, one in which we are shining the spotlight on the Non-QM landscape. And it's been quite the year for the mortgage industry at large. Of course, after a relative feast over the last couple of years, it's been fanning for some with inflation and interest rates soaring. But with the economy seemingly back on track, what does that mean for those Non-QM loans that typically appeal to those who may struggle to lend in different circumstances. That's not the only issue we're going to touch on today, as we also delve into the impact technology is having on the Non-QM space, and whether it could be the key to turning your business around, and who can bring us up to date on developments. I'm delighted to welcome Acra Lendings, Managing Director, head of business development and strategy, Gregory Meola, Greg, welcome to MPA TV. 

Gregory: [00:00:59]  Hey, thanks for having me, Paul, really, really happy to be here and discuss topics with you today. 

Paul: [00:01:05]  Well, let's meet that topic. The Non-QM landscape, tell me a little bit about the biggest challenges and the biggest successes, fractional lending in the space. And in recent times, 

Gregory: [00:01:16]  some of the biggest challenges obviously have been the fluctuation in the marketplace and kind of how we have to handle that. We're really taking a strategic approach to be more technologically and AI advanced, to get ahead and do more predictive modeling, be able to be more efficient, and provide a great customer’s experience through these rocky times. So now that we've kind of settled through the rate craze wave, we're now able to focus on some strategic initiatives that are definitely focused in that technology and AI space. And that's really where we're going to in the future, a lot of success has come from some of these developments on our fulfillment side of the house, which will ultimately eventually start to translate into technological advances. On the consumer side or the customer side, I was dealing with a lot of brokers in the near future here. So we're really excited about those advances in Acra from Acra Lending. And we're really excited to see now that the market is starting to stabilize a little bit how we'll be able to push that forward, and really provide a best in class customer service experience. 

Paul: [00:02:33]  By talking about AI, that you brought me quite neatly to my next question, because you know, as you mentioned, the customer experiences is proving more crucial than ever technology, of course, is playing a key role. So what would you pinpoint is that the key developments in mortgage tech as relates to the Non-QM space, perhaps Perhaps it is AI. 

Gregory:  [00:02:52]  AI has a great deal to do with a lot of things in all aspects of any business right now. It really is the wave of taking companies from the a level that they're at now into into the next level, you're seeing things being released, like Chat GPT, and all these other crazy technologies that are AI based that are, are really consuming the marketplace. The technology available with the Non-QM space, it specifically, it's very interesting, because you have a lot of mortgage technology that's starting to pop up over the map on the map. You know, over the past 10 years, a lot of that technology is focused on retail and you know, A-paper lending transactions. The difference in the Non-QM space is it's a little bit more manual, there's some things that we have to do a little bit differently than you would do traditionally, in what would someone would look at as a conventional traditional A-paper or A-paper lending mortgage. So some of the technology out there is great, and we're utilizing a lot of that technology for decision automation, income automation pieces and parts of the mortgage transaction that are relevant in both A-paper and Non-QM lending. Where we're seeing where we have to make some pivots is those areas in which do not overlay within A-paper transaction. And we're actually working with a couple mortgage technology firms to develop our own technology that's going to pick up the gaps that we're not seeing fulfilled by off the shelf, A-paper lending technology and that's really what we've been working on for most part of 2023. And here in the final quarters of 23. We're going to have a lot of releases as it relates to Non-QM specific technology that will mirror things like DU and LP that you see in your Fannie and Freddie loans, some bank statement, income analysis technology that isn't quite existence because a lot of the A-paper lendings use W-2s. So we're trying to take what's out there, mirror it and develop it to the Non-QM space. 

Paul: [00:05:14]  So you're developing your own technology, do you have something of a strategic approach in that case? 

Gregory: [00:05:20]  Yeah, so the strategic approach really was, I look at it as understand, invest and develop. First, what you need to do is you need to understand the issues that your brokers in your in your business partners face on a daily basis. And once you've kind of consumed that information, then the next step is really see where our gaps in what we deliver today, and what we should be able to deliver here in the future. You map all that out, you get the feedback, you do your gap analysis, and then you start mapping out your vision. And it's going to take a lot of reconfiguration in your people process and technology. Thus far, we're working on internal reconfigurations system adoption, outward facing technology. And I would say probably, if you did a loan with us, one to two years ago, it is a vastly different experience right now. And that experiences is just at the tip of the iceberg on the change. And we're going to have those further developments as we go, based off of what we've seen from the feedback that brokers in the markets have given us. And where we were lacking in some of that technology. And what A-paper lenders are doing right now that we could start to mimic into our process to make it as seamless as the transactions they do on a regular basic, which would be probably more of that A-paper lending. 

Paul: [00:06:50]  There are some of course, who will hear the words, technology and of course, artificial intelligence in particular, and fear that the robots are taking over. So how do you address those concerns? 

Gregory: [00:07:05]  You know, the robots are not taking over, I can assure everybody that they're just making things more efficient, you know, perfect example is, if you're looking at document analysis, right now, it is a tedious process to go through every single document, read through it and have to pinpoint the data points that you need to ensure our prevalence of the loan and make sure that they are accurate to what you need to complete that loan. AI and that type of technology that you're inputting, it isn't the robot, giving you the pass fail, the robot really is just highlighting the areas in which an underwriter or processors a constituent within the process has to look to. So instead of going through a 30 40 50 page document, they're able to go right to the area that they need to look at and see. Okay, this is what the borrower broker told me, and this is what the document says, Does it match check, move on to the next step. So it's condensing down the amount of activity that needs to be done on a loan. It's not taking over the loan process where somebody's habit, as simple as just walking into, you know, a Google search and get alone two minutes later, the robots aren't taking over. In that regard, you know, the technology, I always say to, to my team out here at Acra is the technology is only as good as the people behind it. So there still is definitely a need to make sure that we're having the proper analysis done by, you know, human intervention, but limiting the exposure to that. So we don't have things overlooked. And we could create secure guardrails, through technology to make sure that we're delivering a secure loan with the help of AI. 

Paul: [00:08:59] Well, let me if you don't mind, put my broker's shoes on for a minute. If I'm a broker, how can I feel confident in my lender partners use of technology? Is there something that I should be looking for, in particular? 

Gregory: [00:09:14]  the transparency really, if we're going to be utilizing you know, these tools in this tech type of technology, we need to be transparent with you on how that's working. So what I am in envisioning and working on for Acra lending is something in which that the broker himself when he comes into our portal that will be launching here in the next 30 days, he'll be able to drop documents into this AI black box and he'll be able to see how those AI results are reading his documents. So if that broker looks at it and says, Well, jeez, this is not you know, what the what my document says or this is not what it is intended to be the purpose of this document. he'll be able to have correspondence with our account executives to say, Hey, I'm seeing a problem here. Or conversely, hopefully what we see is that document AI is read properly and the broker goes, yep, this is exactly what I wanted the AI to pull out, this is exactly what my borrower needs to convey to the underwriter. Let's push that forward. So the transparency in the in the whole transaction really is what should put the broker at ease and provide those efficiencies to us at the same time. 

Paul: [00:10:31] Let me just change pace with you, if I can. I mentioned at the top, of course, about the sort of the instability that the Non-QM landscapers has been through over the last year or so, Acra, Lending itself recently received an RO2 evaluation from DVRS, reflecting your own stability, so what would you highlight is the strengths of your business? 

Gregory: [00:10:50]  You know, our strength in the business really is even though we're changing things with technology, and maybe changing some of our processes, our philosophy and our value hasn't changed at all, you know, we are a make sense lender. And we really look at each loan and thoroughly put that through our process to ensure that we're creating a saleable loan, so we're not compromising the quality of our loan through any changes that we're making. So consistently, for all the years that you know, Citadel, then eventually acro lending, has become the philosophy has stayed the same throughout the entire course of business. And that's producing good loans. So when you really have that as your mission statement and your value statement, you mirror your technology and your process and your people around that. So we're always delivering the same type of product. 

Paul: [00:11:47]  Okay, and just one more question, if you don't mind, Greg, because Non-QM, it's all about helping those borrowers in need, if you want. So do you have any tips for brokers looking to rehab the borrower's prospects? 

Gregory: [00:12:00]  You know, the thing I would say to brokers is really, you know, when you're working with your customer, understand the stitching of a Non-QM lending program, and you can work with our account executives, or utilize some of the information on our website, in coming to us directly in any way, understand the stitching, because there's a lot of things that Non-QM can either do to save a loan, or just even create loans and add to their pipeline. So getting more knowledgeable in you know, any aspect of any business that you do is always the best tool, this is having that knowledge. But if you understand the stitching of a Non-QM borrower, you might be able to provide a solution faster for your borrower as opposed to going down a couple routes, getting a couple of rejections, and creating fear within the borrower that they might not ever get, you know, a loan that they thought they really were able to qualify for, because they're a well qualified borrower, just not under traditional lending standards. So it would be to really understand the stitching of our bar and the products and programs that we provide. So that way, when you have a borrower come to you, you really have that full toolbox to be able to give the best products and programs to your borrower and qualify them properly. So knowledge is power. I mean, it's you know, an age old saying, but it really is true. If you can have full and full knowledge of everything from you know, A-paper lending Non-QM hard money lending, you will really be able to provide the best solution the minute that borrower walks in the door. 

Paul: [00:13:41] Knowledge is power. Definitely words to live by fantastic guidance, Greg, many thanks for your time today. 

Gregory: [00:13:49] I really appreciate having me here today and I look forward to talking to you again. 

Paul: [00:13:53]  Because if you want to keep abreast of developments in the Non-QM space and beyond that, make sure you keep it right here at MPA TV.