He was able to purchase a three-bedroom, two-bathroom $640,000 home still under construction, which has the yard of his dreams. It wasn't until October, after nearly 10 months of searching and nearly giving up, that he found an agreeable homebuilder in Riverside County, California, about 90 minutes from Los Angeles.
Two homebuilding companies wouldn't accept non-QM loans. Some investors even keep a traditional job, just so their W-2 can save them from a headache. "It really is more of an art and a specialty in the non-QM," said Greg Austin, an executive vice president at the California firm Carrington Mortgage Services, another non-QM lender with ties to the pre-crisis subprime industry.Ĭarrington - as is common with non-QM lenders - works with self-employed borrowers to parse through bank statements, profit and loss statements, or 1099s to determine their loan eligibility. "If the cash flow of the investment property will cover their mortgage, taxes and insurance, and they've got a goodĬredit score and probably a history of being a property investor, then we think that's a good loan to make," Hutchens said. For instance, Fannie Mae strictly limits the number of properties it finances for an investor, but Angel Oak approaches that differently. When originating a loan for non-QM borrowers or investors, lenders like Angel Oak and Athas are willing to consider a wider variety of financial information than lenders that sell their originations to Fannie Mae or Freddie Mac. Brokers who were busy churning out easier-to-close loan refinances over the past several years are suddenly eager to help borrowers who have a harder time qualifying for loans, including those who could take advantage of non-QM products, Brian O'Shaughnessy, the co-CEO of Athas Capital Group, said. What's ailing the conventional-mortgage market is helping the non-QM lenders, whose borrowers are less sensitive to interest-rate movements because there are few alternatives. The Mortgage Bankers Association forecast total US mortgage originations would probably plunge by 40% this year to $6.8 trillion, with most of that decline due to the drop in refinancings. Angel Oak is finding the borrowers that fit into the non-QM mold are "very underserved" today, just as they were when the company spotted the need and jumped into the non-QM business nearly a decade ago, Tom Hutchens, an executive vice president at Angel Oak, said.īy contrast, conventional lenders are scrambling to downsize their businesses as soaring mortgage rates curb their business. By the end of the year, some experts predict that the non-QM market will as much as quadruple to $100 billion.Īngel Oak Mortgage Solutions, another non-QM lender, projected that its originations would surge to $7.5 billion this year from $3.9 billion in 2021. So as the mortgage market intensifies its focus on these underserved workers, the non-QM market is expanding.
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These lenders' loans differ from conventional mortgages, as they aren't guaranteed by the US government or the finance agencies Fannie Mae and Freddie Mac - which have stricter underwriting guidelines - and they don't meet the definition of a gold-standard "qualified mortgage" set by the Consumer Financial Protection Bureau. Now, with the rest of the mortgage industry shrinking, these lenders are doing better than ever by catering to borrowers who were outcasts of the market because of low credit scores, heavy debt, or their status as nonsalaried workers. Following the subprime-mortgage crisis, they've been embraced by some but haven't played a major role in US housing finance. Their specialty caters to investors and everyday borrowers who couldn't qualify for the tight underwriting standards that followed the 2008 housing bust, as well as to the self-employed. They offer competitive pricing and say they help those who are on the road to repairing their credit. Sprout Mortgage, Angel Oak, Carrington, and Athas Capital Group are four of the lenders who promise to help borrowers without a W-2.
The number of Americans who have trouble landing a mortgage is on the rise, and a group of niche lenders are cashing in to help.