Non-Qualified Loan

2016 Share of Non-QM Loans Return to 2014 Level

By

2016 Share of Non-QM Loans Return to 2014 Level

Against the backdrop of regulatory control, lenders made fewer non-qualified mortgages or non-QM loans in 2016. This is according to the latest real estate lending survey conducted by the American Bankers Association (ABA) among 159 participating lenders, made of commercial and savings banks.

Are you looking for a mortgage lender?»

Regulations Take a Toll on Non-QM Loans, Lenders

The respondents cited increased regulations or regulatory burden in the mortgage market as their top concern.

The percentage of non-QMs in the total mortgage production dropped to 9% in 2016 from 14% in 2015. Last year’s figure was on the same level as 2014’s 10% around the time when the ability-to-repay rule and QM guidelines were first introduced by the CFPB.

The regulatory impact on lending non-QM loans can be seen by an increasing number of banks restricting themselves to making QM loans (31% in 2016 compared to 26% in 2015). Also, banks who primarily originate QM loans then make non-QM loans for a targeted market decreased, from 54% in 2015 to 45% in 2016.

ABA Executive Vice President Bob Davis observed in the trade group’s official journal, “Non-QM loans have been subject to heightened regulatory requirements and risk, reducing the willingness of banks to extend these loans to even the most creditworthy borrowers.

Sixty-one percent of the participating banks expect the ATR/QM rules to have a moderate effect on credit availability, while 29% believed the impact to be negligible and 10% rated the impact as severe.

Find lenders here.»

“Despite ongoing regulatory hurdles, community banks remain resilient in their ability to manage risk levels, increase productivity and introduce more first-time homebuyers into the market,” Mr. Davis pointed out.

In fact, more single-family mortgages were originated for first-time homebuyers in 2016. The percentage increased from 15% in 2015 to 16% in 2016, a record for the survey concerned.

What Makes Non-QM Loans?

The loans’ debt-to-income ratio was the main reason cited by banks why non-QM loans failed to pass the QM standards in 2016.

Other reasons cited were documentation requirements that prevented consideration of all income and assets, interest rate spread exceeded the available spread over the average prime rate, balloon payment, interest-only payment, and excessive points and fees.

A vast majority of banks who chose to originate non-QM loans kept these loans in their portfolio while a few sold them to investors directly or in the secondary market.

This way to meaningful loan deals.»

Are Non-Qualified Mortgages Bad for Borrowers, Lenders?

By

are-non-qualified-mortgages-bad-for-borrowers-lenders

The prefix “non” attached to Non-Qualified Mortgages makes these loan products sound harmful to consumers. But Non-Qualified Mortgages are still appropriate loans per the Consumer Financial Protection Bureau (CFPB). Depending on where you stand in the type-of-borrower spectrum, a Non-Qualified Mortgage might be that bridge that connects you to your first home purchase. And lenders underwriting Non-Qualified Mortgages stand to gain, too.

»Are you a first-time homebuyer? Interested in getting a Non-Qualified Mortgage?»

Catering to “Out of the Box” Borrowers

Notwithstanding the relevant guidelines on qualifying mortgages (QMs), the CFPB gives lenders a go-signal to underwrite loans — Non-QM and QM loans — for as long as they (i) make a reasonable and good faith determination that a borrower is able to repay using sound underwriting guidelines and (ii) fully document this underwriting process per the ability-to-repay rules.

Basically, Non-Qualified Mortgages serve consumers that have been shut out of the homebuying scene. This is especially true for these groups of borrowers belonging to the opposite ends of the income stratum:

  • Those who have high but irregular income.
  • First-time homebuyers in low and moderate income areas.

Think of people who are highly liquid and can afford jumbo loans that exceed the conforming loan limits. These consumers have assets and income but they have trouble documenting their income at least in the traditional sense. It’s the same hurdle faced by the self-employed, retirees, and those who work on a commission basis.

More importantly, there is the segment of consumers in underserved areas whose economic circumstances may have lead them to have low credit, lack of down payment, high DTI, etc. These families belonging to low and moderate-income earning neighborhoods may be creditworthy but access to mortgages remains a challenge even if they are necessarily high-cost products.

Not to mention all other borrowers with myriad issues outside of the QM box are prospective candidates of Non-Qualified Mortgages.

»Click here to see if you qualify.»

A Boon for Lenders

Understandably, not all lenders offer Non-QMs because of the risk they carry, potential lawsuits for one. But making non-qualifying loans to the underserved borrowers has merits, seeing that the Non-QM market could potentially grow to a $400-billion industry. Take note that there is a demand but only a few lenders are making Non-QM loans.

There is also a market to sell these Non-QM loans to. Fannie Mae and Freddie Mac, the biggest purchasers for mortgages, have been limited to buying qualified loans only. As one creditor suggested, lenders can still sell those non-qualifying loans to private investors in secondary markets or keep these loans in their portfolios.

Basically, the underwriting guidelines embodied by the Ability to Repay of the CFPB are but a reiteration of what lending practices ought to be: safe and sound for consumers and lenders.

It’s a win-win situation, taken from this perspective. Given your current situation, is Non-Qualified Mortgage the right loan product for you? More importantly, do you have what it takes to qualify for a Non-Qualified Mortgage? »Need answers to these questions? Talk to a lender now!»