Mortgage

Why non-QM has by no means been so necessary

There hasn't been a day in the past six months that I haven't felt nostalgic for a "normal life". Despite the blessings of a recovering economy and healthy housing market, there are many things that just don't feel like that and are still difficult to get used to.

A nice surprise was the rebirth of the non-QM market, which was an enormous upswing in several ways. Due to the market challenges in the non-QM area at the beginning of the pandemic, however, many authors avoided completely re-entering the non-QM market. While conventional business is at record levels, thoughtful executives can benefit from the significant opportunities that come with non-QM products.

Non-QM loans are the only option for the growing number of consumers who don't fit into the shape of the “typical” borrower. In fact, for many borrowers who may have qualified for conventional finance prior to the pandemic, non-QM loans are the only path towards home ownership.

This is especially true for self-employed borrowers, the number of whom is increasing. In California, for example, before the pandemic began, more than 2.2 million people were self-employed. Unsurprisingly, self-employed borrowers are having greater difficulty qualifying for mortgages. Agency-centric lenders have made it more difficult for self-employed borrowers to qualify for a loan using standard underwriting guidelines. Non-QM account statements and products only for 1099, however, offer a suitable and workable alternative for qualified interested parties.

Non-QM loans also offer a special opportunity for investors in residential properties with one to four residential units. There are over 18 million one-to-four-family rental units in the US, and most are owned by local operators who own fewer than three properties. In the past, these mom and pop owners used personal capital or hard cash loans to fund their acquisitions. Investor cash flow loans, which rely on the cash flow generated from the property to determine income eligibility, provide an extremely viable value proposition for this underserved market.

While the non-QM market was practically closed at the beginning of the pandemic, it is clearly experiencing a rebirth today. At the forefront of this revival are several large lenders with decades of experience in alternative mortgage finance. These lenders typically have systems, processes, and strategic partnerships in place to assist borrowers and real estate investors in any type of market.

While non-QM lending is clearly on its way to making a comeback, the ability to support both good quality property investors and good quality borrowers in special circumstances is not being fully explored. But we can all do something to change the picture. While the global pandemic may have ended what we believe to be normal life, it shouldn't affect our ability to help borrowers who need funding now more than ever – and who can help bring the real estate market back to full strength bring.

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