Continued Growth in Non-QM(Despite Rising Rates?)

Will Non-QM continue to grow, or will there be a market swing?

It’s difficult to predict with certainty whether or not the non-QM market will continue to grow during a market downturn. The performance of the non-QM market is influenced by a variety of factors, including economic conditions, borrower demand, and the availability of credit.

During a market downturn, it’s possible that there may be a decrease in demand for non-QM loans, as borrowers may be less likely to take on new debt or may not be able to qualify for a loan due to reduced income or increased financial risk. In addition, lenders may be less likely to originate non-QM loans during a market downturn due to increased risk or a lack of available capital.

However, it’s also possible that the non-QM market could continue to grow during a market downturn due to the flexibility and alternative loan structures that non-QM loans offer. For example, non-QM loans may be more attractive to borrowers who are self-employed or who have a non-traditional income, as these loans may have more flexible qualification requirements.

Ultimately, the performance of the non-QM market during a market downturn will depend on a variety of factors, and it’s difficult to make a blanket statement about its growth potential.

Why Continued Growth in Non-QM Despite Rising Rates Is A Possibility?

There are a few reasons why there may be continued growth in the non-QM (non-qualified mortgage) market despite rising interest rates.

One reason is that non-QM loans may be attractive to certain borrowers who do not meet the qualifications for a traditional mortgage. For example, a non-QM loan may be more flexible with regard to credit score or income documentation requirements, making it easier for some borrowers to qualify.

Another reason is that non-QM loans may offer alternative loan structures that may be more suitable for certain borrowers. For example, a non-QM loan may have an adjustable rate or a shorter term, which may make it more appealing to certain borrowers.

Finally, rising interest rates may lead to increased demand for non-QM loans as borrowers seek out alternative financing options. As interest rates rise, the cost of borrowing increases and some borrowers may turn to non-QM loans as a way to secure more favorable terms.

Overall, the continued growth in the non-QM market may be driven by a combination of factors, including the appeal of alternative loan structures and the need for more flexible qualification requirements for certain borrowers.

“The non-QM space will grow again as the need to serve the underserved borrower continues to increase.”

Tom Hutchens, EVP of Production at Angel Oak Mortgage Solutions

What We Know So Far

Seeing how non-QM loans function under stress has been a learning lesson for everyone. Although borrowers have mostly survived the pandemic’s economic problems by keeping up with their payments or exploiting loan modification or forbearance chances supplied by their lenders, lenders have gained new insights into risk mitigation in this category. Many lenders have made changes to their non-QM lending programs and underwriting standards in order to accommodate additional borrower circumstances while also better safeguarding themselves.

As non-QM activity picks up, lenders and investors in the market must rely on reliable partners for specialist assistance with portfolio risk management. Technology and skill in valuations, title, and closing, can help to speed up the origination process and alleviate the time-consuming and complex nature of third-party financing.

AHL Funding provides flexible lending options, efficient solutions, and great service to assist you in increasing your bottom line. We are confident in our non-QM alternatives and experience, and we want to share that knowledge with you to help you develop your business.