Lenders, it’s time to consider offering non-QM products
While the non-QM market was hit early in the pandemic, these loans are making a comeback and are expected to continue growing in 2021. Lenders who do not offer non-QM loans may want to reconsider their decision. HousingWire recently spoke with Steven Schwalb, CEO and Managing Partner of Angel Oak, to discuss the high performance of non-QM loans in 2021 and how lenders can integrate these products seamlessly into their business.
HousingWire: What does the performance of non-QM loans in the first half of 2021 tell us about the future of non-QM loans?
Steven Schwalb: He tells us that anyone not using non-QM should quickly start using it. We are very pleased with the performance of the non-QM rebound in a short period of time after the pandemic.
Once again, we found ourselves charting a new course and we got it under control. The future of non-QM is bright. The projected volume for non-QMs is expected to reach $ 200-300 billion per year over the next few years.
We expect the non-QM market to continue to grow with the economy still recovering. Additionally, restrictions spelled out by Fannie Mae and Freddie Mac along with increased restrictions on bank lending mean increased demand for non-QMs.
Our clients tell us that our lending solutions offer an opportunity to capture more buying volume. They see their bottom line grow by helping independent borrowers, real estate investors, and people with credit events outside of Fannie Mae and Freddie Mac’s jurisdiction. And we are here to help all of these deserving people. There is great growth ahead of us. Now is a great time to be in the mortgage industry!
HW: Which non-QM products were the most popular? Why do you think it is?
SS: Our most widely used loan product is the bank statement for independent borrowers. Independent borrowers represent a large population that has been underserved in the market for a long time. We did not create this market, rather we offer a solution to a problem that has always existed.
Not being eligible for a mortgage just because tax returns won’t work for a creditworthy borrower is unacceptable. A borrower with a credit score of 740 and a low DTI who purchases a luxury home shouldn’t necessarily be turned down, but it happens every day. We can save the deal for our clients and the borrower.
Our Investor Cash Flow product is just behind with a significant share of volume. There are many real estate investors out there and many need a DSCR solution that measures cash flow instead of submitting income and employment information.
It is a very easy loan to make and closes quickly. Today’s market is very competitive and the initiators can count on the conclusion of agreements for their investor clients to win properties. It is also a great option for those who need to complete a 1031 exchange transaction. The popularity of this product is just how easy it is to do. We have loyal customers who rely on us every month to complete their transactions with investors.
HW: What challenges do lenders face as they continue to implement new loan products?
SS: The creation and improvement of innovative mortgage products benefits the industry. The challenge is to manage product risks and product quality. We have been in the market for a long time with a strong leadership position in non-QM.
We have refined our operations and production processes to mitigate risk and lend responsibly. The process and systems we have in place examine every characteristic of a new product and assess its impact on the overall financial and non-financial risks to Angel Oak and the economy.
All of our procedures and operations that we have in place have been refined over the years and are constantly making the appropriate changes to control risks. Whether the product is new or involves updated guidelines that modify it from the existing product, the potential for misunderstanding the risk associated with the change or development is significant.
This is especially true when it comes to adding higher debt-to-income ratios (DTIs) or higher loan-to-value ratios (LTVs) over time. We write our own guidelines and have been doing it for a very long time – we understand the challenges and what it takes to implement new or improved products.
HW: How does Angel Oak plan to approach the second half of 2021 with these ideas in mind?
SS: By doing what we do best: helping borrowers left out of Fannie Mae and Freddie Mac. Every month we see an increase in scenarios involving people turned away because they cannot claim a loan from the Agency. It’s our specialty and we know that non-QM is the key to helping these people and the mortgage industry as a whole thrive.
At the moment, we are in a major growth mode. Due to the demand for our products, our goal is to hire the best people. We continue to invest in technologies and systems that enable growth but in a controlled and responsible manner.
Our alliance with our Angel Oak Capital asset management team provides powerful information and systems that we can use in our origination efforts when market conditions change. We adhere to a very disciplined financial management system that works.
Most importantly, we stick to our mission of providing the best mortgage services and products to our clients with one clear goal: to help a huge number of borrowers close in an easy and efficient way. We do it every day. Angel Oak Mortgage Solutions is the leader in non-QM for these reasons. Work with us and experience the power of Angel Oak for yourself!
For lenders to be successful, they need to make sure they have the tools to help different types of borrowers. Angel Oak creates and improves innovative mortgage products, including non-QM loans, to help lenders grow their portfolios.