Know that these types of hiccups are commonplace for many non-QM wholesalers, and partner with providers that have eliminated them. Bumps in the road like that are missed opportunities that waste everyone's time.
For example, a wholesaler may tell a borrower they qualify for a loan at an 80% loan-to-value ratio (LTV), only to have the end investor refuse those terms and insist on 65% LTV, leaving the broker in a difficult position with an upset borrower.
One example I see frequently is wholesalers rejecting a loan after having already approved the terms. While that advice may seem like common sense, there are plenty of wholesalers that oversell and make inflated promises, hurting the broker as much as the borrower. The bottom line is that originators should avoid non-QM providers just looking to cash in on a trend, and seek out wholesalers and direct lenders that have the resources and track record to help you grow your business. You also need to make sure your non-QM partner is actually able to make their own credit decisions, as opposed to relying on underwriting from a third party. Those resources might range anywhere from a one-person non-QM “team” to a fully staffed department some firms only work in the non-QM space. Originators should evaluate the resources a non-QM wholesaler or direct investor has put into their program. You want a partner that has funded 10,000 loans, not 10. Much like any other activity, mastery of this work is only gained through thousands of hours of experience. We've seen a flood of new entrants into our industry, and I can say certainly that some are better positioned than others. Above all else, the best non-QM partner has commitment to and experience in non-QM lending. Choosing the wrong partner could lead to lost opportunities. Offerings, experience and service vary widely across non-QM wholesalers and direct investors, so it’s critical that originators choose wisely. To truly capitalize on that growth, however, originators need the right partners and the right approach. New players continue to join the non-QM market as a result. While that’s a far cry from the $1 trillion-plus in the pre-crisis period, even conservative estimates are predicting exponential future growth. Most market observers believe that non-QM is still in its infancy, with some experts forecasting the market to reach anywhere from $100–$300 billion per year. Ten years later, the non-QM market has bounced back to an estimated $20 billion per year. In the years following, the subprime market effectively went to $0. Subprime lending was a greater than $1 trillion market prior to the crisis. In present day, regulations have stopped the current market from looking like pre-crisis. The disappearance of private capital was the catalyst to this industry shift, and the only loans available were agency loans. Despite the frequent comparisons to the subprime lending practices in the run-up to the housing crisis, the fact is that post-crisis regulations have made it challenging for even creditworthy borrowers to access the mortgage market. At my firm, we believe that a robust non-QM market helps support the long-term health of the mortgage market.
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