![]() ![]() And as government regulations constantly change, it’s difficult to keep track of and adhere to the changes. Regulatory compliance and risk management are top concerns of U.S.-based lenders. Lenders' inability to make the right decisions at the right time negatively affects their businesses. ![]() However, if the volume of loans increases, lenders will have a hard time managing demand with limited resources. ![]() Therefore, it's difficult for lenders to decide whether to invest in additional capacity. Increased Cost of Lendingīecause the non-QM market is in a state of transition, it's not easy for lenders to forecast the demand levels for this product moving forward. These concerns are increased for lenders getting into new segments of the mortgage business, including non-QM, because they haven't had practical experience identifying and mitigating fraud in non-QM loans. In fact, one out of 120 mortgage applications is fraudulent, a 37.2% increase from Q2 2020, when one out of 164 applications was fraudulent.Ĭonsequently, it's critical for lenders to do everything they can to safeguard their interests and quickly detect signs of suspicious activities. Mortgage fraud has been steadily increasing over the past 10 years or so. Since non-QM loans are a higher risk, lenders need to optimize the efficiency of their processes. On average, an individual has a 10% chance of making an error when executing the steps in the loan process. Not only is it expensive, but it's also error prone. Processing non-QM loans manually is not an easy proposition. Challenges for Lenders in the Non-QM Space While adding a non-QM loan option can be lucrative for lenders, the sector does present some challenges, including: 1. Because non-QM programs take a more holistic look at the borrower, the risk equation is still favorable.Īdditionally, since lenders offering non-QM loans aren’t obliged to comply with the same governmental regulations as they are with qualifying mortgages, they can offer more flexible income requirements and set higher interest rates to offset the added risk. However, they are far from subprime because non-QM borrowers must still satisfy the ability-to-repay rule, showing they have the finances to make good on the loans.Īlthough non-QM loans must abide by the federal ability-to-repay rule, non-QM lenders use different guidelines to ensure borrowers can repay their loans. ![]() Some lenders may consider non-QM loans risky and akin to the subprime loans of the past. But lenders offering non-QM loans aren't required to verify borrowers' incomes, evaluate their current debt, and conduct other financial checks.Ī non-QM loan can help borrowers with alternative documentation, such as bank statements, qualify for a mortgage. Self-employed borrowers typically have more trouble qualifying for regular mortgages than traditional wage-earning borrowers. What Is a Non-QM?Ī non-QM is a home loan that aims to help potential homebuyers who can't meet the strict federal requirements of traditional or qualified mortgages, including self-employed borrowers and those with dings on their credit reports, such as prior bankruptcies, low credit scores, and foreclosures. Now, things are changing, and non-QM borrower demand is increasing, which makes this a great time for lenders to offer non-QM loans to meet the needs of borrowers who are unlikely to qualify for traditional mortgage loans. When the pandemic hit, liquidity in the non-QM sector dried up - as was the case in all credit markets - and millions of borrowers in the U.S. In 2022, non-QM originations will likely reach between $80 billion and $100 billion as there is more focus on non-QM loans this year than in years past. As such, lenders should consider expanding their product mixes to include non-qualified mortgage (non-QM) loans. With refinancing volumes on the decline, according to MBA, more mortgage lenders are looking to expand their product offerings to qualify more borrowers. ![]()
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