What awaits non-QMs in 2024? | ET REALITY


HousingWire recently spoke with Mack Walker, senior vice president of capital markets at Deephaven Mortgageabout what the year was like for the non-QM sector and what awaits the industry in 2024.

HousingWire: How has the non-QM sector fared this year between rate increases, slow purchase volumes and difficulties in the banking sector?


Mack Walker: The non-QM sector is similar to other sectors in the mortgage space that suffered headwinds throughout 2023 relative to volume in recent years. While we have had our challenges, non-quality management has been more isolated than agency. Due to tight credit markets and other factors, non-QM loans have been in higher demand and interest among lenders is growing. Our expectation is that the volume will be around $30 billion by the end of 2023.

The reasons for the success of non-quality management lie partly in the composition of borrowers. Borrowers who do not participate in QM, such as the self-employed and real estate investors, are generally less sensitive to rates. In fact, a growing focus is the population of real estate investors.

In a market with higher rates, affordability persists, and this creates a situation where there is greater demand for rentals versus purchases from new home buyers. There is also growing demand for non-QM products from a banking sector that is taking note, presenting new opportunities where some banks see the need to sell loans that they would traditionally hold as portfolio products. We also remain vigilant for any disruption in the warehouse lending space and see this as an area of ​​potential focus heading into 2024.

HW: What are the strengths of the non-QM sector?

MM: Non-QM provides a source of financial solutions geared toward homeownership for a growing population of underserved borrowers in the United States. According to the US Bureau of Labor Statistics Approximately 16 million workers are self-employed. The population of gig economy entrepreneurs and workers is growing, and the documentation requirements to qualify for a traditional loan present obstacles for this borrower base.

Deephaven is filling this gap not only for self-employed borrowers but also for other types of borrowers in the non-QM space. These borrowers include real estate investors, as mentioned above, with a continued emphasis on providing liquidity through a debt service coverage ratio (DSCR) product that qualifies based on the rental cash flow of the subject property. There are currently about 19.9 million rental properties in the US, of which 85% are owned by individual investors and LLCs, according to 2021 US Census data.

HW: How can lenders and brokers learn more about offering non-QM products?

MM: Deephaven has curated an educational series that has gained esteem and popularity among our partners. Additionally, we organize a large number of webinars for our partners. Included in our educational series is a course on finding non-QM borrowers. This is important as many of our partners need guidance on where to find non-QM borrowers.

Our client development team spends a lot of time at conference forums and retail branches training loan officers. Deephaven is the teaching university of moneylenders! We will educate exactly how to best serve these borrowers, as each borrower is unique in their own way and presents a different set of circumstances.

The high interest rate environment has created a situation where more brokers want training to become experts in topics unrelated to quality management. Deephaven is a pioneer in this space and we can provide an advantage for those ready to provide non-QM loans. For that group still hesitant about the space, we urge you to call us and learn more about sophisticated non-QM borrowers and these well-performing loans. It is essential to partner with the right lender that focuses exclusively on non-quality management aspects and has been in the industry for a long time with experience in the field. We will guide you every step of the way.

HW: Looking ahead to 2024, what’s in store for non-QMs?

MM: Demographic trends continue to move away from traditional employment towards entrepreneurial self-employment and the informal economy. This is a trend that works well in the non-quality management space. If rates stay high longer, the market will continue to bode well for non-QMs. Non-QM borrowers are generally less sensitive to a higher rate environment. We continue to see growing demand for non-QM products and our continued volume growth supports this.

The bottom line is that, looking ahead, we see continued growth. If you do not currently offer non-QM products, we encourage you to explore and add to the product suite in 2024. The key to success with non-QM products is to choose a non-QM lending partner wisely. There are a variety of ways to participate in the space: brokerage, banking, delegated correspondent, non-delegated correspondent, etc. Deephaven is up to speed with over a decade in space. We know how to navigate this ever-changing market and continue to grow at the same pace as our partners.

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