For the first half of the year, seemed the buzz phrase in the lending world was “mini-correspondent lending.” As we look forward to the second half of 2014, that buzz has seemed to shift to non-QM lending.

In this post I will not spend too much time regarding non-QM/nonprime (formerly subprime) segment of the business, other than to say I know of a few market participants. The FICOs range from 500-550 and DTI exceeds 43%. Still it is a relatively small market.

The larger non-QM market segment that appears to have some level of activity and interest is the near miss QM product. This segment can be broken down into about 5 product categories:


1)    Interest Only (Mostly offered by larger banks) Usually Prime Jumbos.

2)   Expanded Ratios with greater than 43% DTI

(I typically am seeing DTIs offered up to 50-55%.)

3)    Business Loan/Investment Properties

4)    Alternative Documentation/Bank Statement Loan:

“Self employed borrowers” loan program.

5)    Asset inclusive/Asset Depletion


There are a growing number of investors participating in the non-QM market segment. They all try to offer something unique….portfolio 5/1 ARMs, FICO score requirements, LTVs, and loan amounts. Some are offering a Fixed Rate option on both conforming loan amounts and/or Jumbos.

I also know of some of the investors actively looking for correspondents interested in offering warehouse lines to the mortgage banker they approve. Their “sales pitch” is sell loans to us and we will fund your loans at Par versus a haircut (cost of warehouse line usage paid for by the correspondent) of 90% or less.

Others are offering up such a program with the hope that warehouse banks eventually approve the program and multiple investors offer similar programs. Most warehouse banks typically want to see at least 2-3 investors for a program and they have to be financially qualified to be able to handle volume and potential lender buybacks.

The non-QM world, as well as the QM but non-GSE market (Yes, non-GSE can still be QM compliant) is supported almost exclusively by balance sheet/portfolio lending. Many are cautiously optimistic to be able to access the securitization market soon with the recent announcements by some players stating their intentions to enter this area.

While the market is slowly evolving and will take time to gain meaningful traction, there seems to be enough interest here that many industry participants fully expect enough volume to result in securitizations within the next 12 months.

I’d love to hear what you are seeing in the non QM market, too. Please share your thoughts or questions below

Lloyd San

Lloyd San - Retired MGIC Mortgage Market Manager

A 30-year mortgage industry veteran, retired in 2021, Lloyd San served as Mortgage Market Manager for Mortgage Guaranty Insurance Corporation (MGIC). Overseeing a national effort, he was responsible for managing all client-related capital market activities in the areas of bulk and correspondent loan referrals, investor introductions, structured products, whole loan sales, as well as product and personnel introductions.

In addition, he is chairman of the California Mortgage Bankers Association, Secondary Marketing Executive Committee and also serves on the Western Secondary Conference Committee.

A graduate of San Diego State University in California, Lloyd received his MBA in Financial Management from National University. He also holds a California Real Estate Broker’s License.

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