Non-Qualified Loan

Why are Non-QM loans Important in the Market?

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Many of us probably know what non-QM loans are by now. These loans do not conform to the standard definition of a mortgage loan as defined by the federal government. What if non-qualified mortgage (non-QM) loans never existed? What will happen to the housing market?

Is the Non-QM Decline Dawning?

According to the recent Real Estate Lending Survey done by the American Banker’s Association, there are fewer originations on non-QM loans last year. There was only 9 percent in 2016; 5 percent lesser compared to 2015.

Stringent regulations were seen as the main cause for this decline. More than 30 percent of the banks who used to originate non-QMs stopped creating them.

The Misconception About Non-QMs

When we hear about a non-qualified mortgage, some would automatically think “high risk”. This is simply not true. It being high risk is not implicit. In fact, many of the borrowers have and need a good credit score for them to qualify.  They also need to provide documentation to prove and support their income and assets claims.

It is true that non-qualified mortgage loans are designed to help those who cannot qualify for a qualified mortgage. These borrowers may be self-employed, earn through commissions, or simply own businesses. Sometimes, these individuals find it difficult to provide the papers needed in a qualified loan. This lack of income documents though doesn’t automatically mean they lack the finances to afford to pay the loan.

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Non-QMs Keep People in Homes

In the latest data from the Bureau of Labor Statistics, there are 15 million Americans who are self-employed. That accounts for 10.1 percent of the total U.S. population.

Imagine 15 million not having a house because they cannot qualify for a loan. A few of them may be able to get financing through a qualified mortgage, but it will not be an easy feat. Many others will simply not qualify because their income documents may not be sufficient enough.

Non-QM loans provide a huge opportunity to many individuals in terms of homeownership and sustainability. This is a fact that cannot be denied.

It keeps the Housing Market Thriving

Non-qualified Mortgage loans contribute greatly to the housing market. It helps the recovering housing economy thrive. Most non-QMs are offered by private lending institutions, the involvement of their money in the housing industry is critical to the economy’s longevity.

The Non-Qualified mortgage industry may be undervalued because of the misconceptions that are closely linked to it. Once we learn the importance of having this type of loan, we will understand why non-QMs need to be available in the market.

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Regulations Result to Lower Non-QM Originations

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Regulations Result to Lower Non-QM Originations

Per an American Bankers’ Association’s Real Estate Lending Survey released recently, tight regulations have never been helpful in serving the business objectives of bankers. A good 95 percent of bankers say current regulations are basically hindering credit availability towards consumers. They highlight the toll in cost that they needed to integrate into their processes for compliance. The report was released during the association’s annual Real Estate Lending Conference in Orlando, Florida.

Report highlights

Among the highlights of the report include the fewer non-qualified mortgage originations in 2016. In total, they have originated 5 percent less in non-qualified mortgages last year. In 2015, non-qualified mortgages made up 14 percent of all mortgage originations but decreased to only 9 percent in 2016. Over 30 percent of these bankers stopped originating non-QM loans due to the stricter regulations.

ABA EVP Bob Davis says “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. 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.”

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Record-breaking numbers

The survey yielded some surprising numbers, aside from the highlighted non-QM decline. In its 24 years of establishment, first-time homebuyers mortgage lending on single-family abodes hit the highest. Last year’s record was a 16 percent rise from the previous year’s.

Foreclosures fell as well. In 2015, foreclosures were at 0.63 percent. This year, it decreased to just 0.37 percent.

Meanwhile, delinquencies on single-family home loans increased to 1.42 percent from 1.27 percent in 2015.

It also appears that consumers still bank on stability by the number of fixed-rate mortgage originations which remains the most popular loan type, according to the survey.

Aside from the tightened regulations, other concerns among realtor circles include the rising interest rates, continued scarcity in available housing, and the increasing cost of operation.

The survey was participated by 159 banks, 76 percent of which with less than a billion dollars in assets.

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