Non-QM’s comeback isn’t slowing down

One of the first apparent mortgage-market casualties of the COVID-19 pandemic was non-QM lending, with many lenders halting originations as the economic impacts of the outbreak made themselves felt. However, non-QM is already making a comeback – and much faster than expected, according to one expert.

“We’re going to have a pretty good July in the non-QM world,” Tom Hutchens, executive vice president of Angel Oak Mortgage Solutions, told MPA. “Activity isn’t pre-COVID yet, but it’s a lot better than we anticipated this soon.”

Angel Oak temporarily suspended its own non-QM originations in March before restarting them in May. Hutchens said that the company saw continued demand for non-QM products right away.

“There are still challenges out there, but we’re absolutely getting traction with our non-QM products,” he said. “The borrowers didn’t go away. What’s going on is a pandemic, but housing is sustaining itself. I think the refi boom has given people a lot of confidence around housing. And the non-agency borrower is still out there. A big piece of non-QM has always been for those self-employed borrowers, and I think they’re starting to see a path through this.”

Investors are also still interested, Hutchens said. Angel Oak recently completed two post-COVID-19 non-QM securitizations worth a total of $876 million.

“Non-QM doesn’t exist without securitizations and private equity, and it doesn’t exist without originations,” he said. “If you don’t have one of those, or anything in between, it doesn’t work. But we have it all right now. … The non-QM engine, if you will, is intact.”

Hutchens said there was a good reason that the non-QM sector has been able to recover so quickly.

“My personal belief is that it’s because of the groundwork we laid in the prior seven years. If we were just starting this, there would be zero traction,” he said. “But we have a proven process – originating quality loans and creating quality securitizations on the investment side. That’s allowing the market to get back on its feet sooner rather than later. Had this pandemic hit in 2015, when we were just getting started, it would have been a different story. But we’ve done 15 securitizations so far, and their performance has been outstanding. That groundwork is allowing us – and the industry as a whole – to get back on its feet sooner rather than later.”