The non-Qualified Mortgage (non-QM) world has been relatively quiet since the initial hype and speculation after Qualified Mortgage (QM) rules took hold. One reason may be the many originator risks associated with these loans.

However, recent studies by Moody’s Investors Service and Andrew Davidson & Co. suggest that the risk of non-QM loans is not dramatically different from that of Qualified Mortgages, provided there is a strong underwriting component. Reports like these could begin to pave the way to a broader non-QM market place.

In fact, I received direct feedback from originators, investors and private equity funds looking at or participating in this space. Here are the takeaways:


  • Warehouse banks would embrace the product if the customer can show
    2-3 investors that have similar product/guidelines


  • Most investors have their own warehouse bank to support their product offering


  • Investors/PE Firms may have to do extra training at the LO level
    • The challenge has been to get LOs to match the right borrower with the right loan program


  • Prime jumbo issuers are getting more comfortable placing non-QM loans in a security where debt-to-income ratios exceed 43%
    • The higher credit quality for these loans has been consistent with respect to prior issuance


  • There is a pricing disconnect between investment community and borrower/consumer
    • Yields will have to come down over time to reap larger volumes


  • Most industry participants still agree with Deutsche Bank’s study of an available market of $50 billion — less than 5% of the market


  • The wholesale market is starting to gain a little traction with the non-QM product


  • The most popular programs include the 12-month bank statement for self-employed borrowers and the investor/non-owner, which doesn’t use appendix Q to qualify borrowers


  • All industry participants require the ATR component (Ability-To-Repay Steps)


The silver lining with this market feedback is that there are signs of life within the wholesale business channel. It was recently reported that there are a fair amount of experienced loan originators leaving their current bank jobs and forming their own broker companies. One of the few reasons cited was “access to more products and programs to fill clients’ needs.” Additionally, many of the LOs saw a potential income boost in becoming a broker.

The non-QM segment can be the catalyst needed to grow the relatively dormant broker channel, which is currently a little over 11% market share. This is where nonbanks dominate, as many money center banks and regional banks exited just a few years ago.

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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