Since the Qualified Mortgage rule came into existence in early 2014, non-QM lending has been slow going.
Sure, only two years have passed since non-QM was even able to be a thing, but it doesn’t appear to be growing by leaps and bounds, or even just leaps (or just bounds).
Yes, the list of non-QM lenders is always growing, and there are dozens of lenders on that list, if not 100+ now, but loan volume still seems to be thin.
One of the problems is the regulatory environment, which is still a big unknown for the nascent industry niche. Heck, even QM-compliant loans are coming under fire thanks to TRID, so it’s no wonder non-QM lenders remain skittish.
Mixed Appetite for Non-QM Loans
A new survey from Lenders One revealed that mortgage lenders remain cautious about the non-qualified mortgage market.
The Lenders One Mortgage Barometer, which surveys 200 mortgage lenders, found that the market players have a “mixed appetite” when it comes to non-QM loans.
They noted that less than two-thirds of survey respondents actively originate non-qualifying mortgage loans. Some 64% to be exact. It’s interesting that they frame it as a “less than” situation though.
One might argue that two-thirds of lenders is solid participation in a niche lending market that is still relatively brand new relative to any other form of mortgage lending.
Anyway, the issue might have to do with this next statistic. The survey also found that among lenders that said they originate non-QM loans, just 51% indicated that they were “extremely or very likely” to keep originating them in 2016.
That’s kind of a bad sign, isn’t it? Just about half of lenders expect to keep offering these loans. Ouch! Oh, and less than one in five (18%) actually frequently originate non-QM loans.
Does the Current Housing Market Need Non-QM Loans?
So it sounds like non-QM lending is still pretty light in terms of volume and doesn’t look to be growing in 2016. In fact, it might even contract. That’s disappointing, but it could be a testament to the market we’re currently experiencing.
How much demand is there for a non-QM loan when there are plenty of options for borrowers with low or even no down payments and dismal credit scores? Let’s face it – the FHA, and even Fannie and Freddie, allow pretty wacky stuff as it stands. That doesn’t leave much room for non-QM lenders to operate.
Additionally, the housing market is extremely competitive at the moment so borrowers are being forced to put more money down, or come in with stronger attributes in general to get their offers accepted.
That means non-QM may continue to be rather weak for the foreseeable future. Of course, if and when credit needs get more complex/demanding, non-QM lending could surge.