According to the ICE Mortgage Technology report, conventional loans continue to dominate, starting 2021 off with 84% of the market, although that dipped to 78% by December.įederal Housing Administration loans made up 12% of originations in December 2021, while U.S. Despite good intentions, these regulations have created a set of borrowers that are left out of the housing market, despite being creditworthy. These rules were put in place after one of the worst financial crises in history, in order to prevent a repeat of the high-risk lending that caused the crisis. In addition, the sum of points and fees cannot exceed 3% of the loan amount (except for loans under $100,000), and the borrower’s monthly debt-to-income (DTI) ratio cannot be greater than 43%. These criteria currently include meeting the ability-to-repay rule, and loans must be fully amortizing with terms no longer than 30 years. What is considered a “qualified” mortgage is determined by the Consumer Financial Protection Bureau (CFPB) as part of the criteria that must be met for a mortgage to be backed or purchased by government loan programs or by the GSEs. Borrowers with less-than-perfect credit or with unusual documentation or circumstances are now largely being left out of the mortgage market.Īt the heart of the issue is the Qualified Mortgage Rule itself, as well as many lenders’ unwillingness to originate loans outside of those narrow parameters. However, from 2001-2003, prior to the housing crisis, the credit availability standard for the mortgage market was 12.5%. Although this is still historically low, it was an improvement over the record low of just below 5.0% seen in Q3 2020, reflecting the effects of the COVID-19 pandemic. This has left a significant percentage of the population without access to credit, despite other indicators of being creditworthy.Īccording to the Housing Finance Policy Center’s Credit Availability Index (HCAI), mortgage credit availability was 5.2% in Q3 2021 it stood at the same mark in Q2 2021. In addition to the regulations put in place to protect consumers, many lenders have been extremely risk-averse and have stuck to qualified mortgage originations as defined by the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Mortgage credit availability has remained low since the housing crisis in 2007. But why does the market need non-QM loans? Who are today’s non-QM borrowers? And what do they need from a lender? Non-QM lending is a growing niche, and one that can not only help originators grow their business but also help borrowers who have been overlooked by conventional lenders. However, finding that flexibility has been difficult for many years, as rigid loan guidelines and regulations have dominated originations, curtailing who is considered a “qualified” borrower and creating demand for loan products that can serve those borrowers who fall outside these parameters. Similarly, flexibility may be just as critical to the mortgage industry. Location is widely recognized to be of critical importance in real estate. Most options allow for higher Debt-to-Income (DTI) ratios and/or alternative income documentation.This piece originally appeared in the May 2022 edition of MReport magazine, online now. These loans can be misunderstood- while they may ignore some of the traditional underwriting requirements they still require a lot of documentation. Non-QM loans aren't right for everyone, but sometimes they are the best fit to help you achieve your financing goals. In general, avoiding these terms or features is thought to make a loan safer and more stable for borrowers. First, it must avoid risky loan features, such as negative amortization, a term longer than 30 years, a balloon or interest-only payments, or fees that typically exceed 3% of the full loan amount. What is a Qualified Mortgage?Ī loan must meet several standards to be considered a qualified mortgage under the ATR/QM rule. Non-QM Mortgage Loans What is a Non-QM Loan?Ī Non-QM loan is a loan that does not meet the standards set by the Ability to Repay/Qualified Mortgage (ATR/QM) rule as defined by the Consumer Financial Protection Bureau (CFPB).Ī Non-QM loan may be the best option for you depending on your unique circumstances.
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