6/14/2023 0 Comments Non qm loans 2021 rates![]() ![]() The key is using compensating factors to offset one or more other, less-than-ideal factors, whether it’s the borrower’s low credit score or an interest-only loan. The challenge is how to do so since there is no standard for evaluating non-QM risk. That’s mostly because non-QM lenders must still meet Dodd-Frank requirements to verify a borrower’s ability to repay. Any time lenders and investors loosen their requirements-whether it’s by lowering allowable FICO score requirements or accepting higher DTI ratios-they’re inviting risk, that’s likely to result in a rise in delinquencies and defaults.įortunately, the mortgage industry is nowhere near the free-for-all that existed back when lenders were handing out stated income loans like they were candy to borrowers with poor credit. According to an October 2, 2019, Washington Post article that cited data from the Urban Institute, about 30% of Fannie Mae loans involve payments that are nearly half of the borrowers’ monthly income and 25% of new FHA-guaranteed mortgages had DTI levels over 50%, the highest level in nearly 20 years. It’s well-recorded that government agencies are tolerating higher levels of risk. But what sort of price is to be paid for relaxing credit standards? ![]() However, the MBA is also predicting that economic growth will “slow to a halt” in early 2020 and possibly enter a recession, due to a combination of economic factors, including the current inverted yield curve.īy extending credit to borrowers who do not fit qualified mortgage rules, lenders are hoping to keep their loan pipelines full and protected, or even benefit since non-QM loans allow them to charge more than QM loans. In its August market forecast, the Mortgage Bankers Association reported that 30-year fixed rate mortgage rates had fallen more than one percentage point since reaching a high of 5% in November 2018, causing the MBA to project a 38% increase in refinance volume and a 5% increase in purchase volume for 2019. Indeed, in spite of declining interest rates and low unemployment, there have been several signs recently that purchase origination volumes might be tapering off. There is no bigger driver behind non-QM mortgage loans than the need to maintain or expand production. Yet the non-QM market is steadily growing, with new types of mortgage products being introduced every month, including loans with fewer document requirements, high debt-to-income (DTI) loans, and even interest-only loans. In fact, according to CoreLogic, the total non-QM loan market only made up about 4% of total mortgage originations in 2018. When the Consumer Financial Protection Bureau (CFPB) adopted the qualified mortgage (QM) rule in 2014, the mortgage industry was running mostly on government paper. ![]() While certain lending behaviors that directly contributed to the last housing crisis do not appear to be taking place today, it’s worthwhile to examine how and where the tolerance for risk in the non-QM market is growing, and what lenders can and should be doing to stay out of trouble. It might be too early to sound any alarms, but these are still good questions to ask. After all, the mortgage industry has a habit of forgetting about its past. With the volume and types of expanded credit options likely to continue to increase in the near future, some are beginning to question how much risk lenders and investors are willing to take on, and whether the growth of non-QM lending should be looked at as some sort of red flag. What isn’t as obvious is where all this is heading. It’s also obvious that the increased risk tolerance for non-QM loans is being driven by lenders’ desire to capture as much market demand as they can in a favorable rate environment. There’s little doubt that the non-QM loan volume is growing, and that lenders and investors are showing an increasing appetite for an expanded credit box. Editor’s note: This feature originally appeared in the October issue of MReport. ![]()
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