By all accounts, the non-qualified mortgage (non-QM) market is booming. In 2018 alone, $11.38 billion of expanding-credit MBS, including non-QMs, was issued, and analysts expect a 60% increase in these products in 2019.
Despite this sudden rise in popularity, many mortgage professionals still have concerns about non-QMs, fearing increased risk after the mortgage market finally settles down. Misconceptions about what a non-QM loan actually is abound, leading to even more apprehension.
What is a non-QM?
A non-QM loan is any loan that does not comply with the Consumer Financial Protection Bureau’s (CFPB) existing rules on QMs. The rules were established to protect borrowers to ensure they don’t pay excessive fees or points on their mortgage, and that they have the ability to repay their mortgage.
However, the QM rules disqualify many borrowers who fall just outside of the CFPB’s qualified mortgage (QM) guidelines. These borrowers, including the self-employed, foreign nationals, unemployed borrowers with significant assets, and real estate investors, are going unserved in the housing market.
Non-QM interest rates may be higher or for longer terms, and the origination process is geared toward these borrowers differently. A non-QM is anything but subprime, ATR-noncompliant, or predatory.
The Non-QM Challenge
As Ben Wu, executive director of technology at LoanScorecard, explains, the scrutiny and documentation behind a non-QM loan can be burdensome, as can underwriting. No lender wants to take the borrower through the origination process only to encounter unexpected obstacles unique to non-QM. Agency mortgages follow standards and processes that don’t always fit non-agency loans, and the differences can reduce efficiency.
How Technology Can Help
In the past, when faced with a borrower applying for a non-QM loan, mortgage professionals had to manually process and underwrite applications, increasing the possibility of human errors and potentially compromising the accuracy of data. Today, newer technology exists to ensure accuracy and speed.
Portfolio Underwriter is the only non-agency AUS in the market today. Along with DU and LPA, Portfolio Underwriter is the third leg to the automated underwriting ecosystem and the key to serving more borrowers and increasing production. Investors, banks, and credit unions can analyze loan data for unique product guidelines in seconds.