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Non Qualified Mortgage Programs
What Is a Non-QM Loan?
After the most recent housing crisis, the Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into law in the summer of 2010 by President Barack Obama.
Along with other regulatory reform, it created minimum standards for mortgages, including the Ability to Repay rule and a Qualified Mortgage definition. These were later adopted by the Consumer Financial Protection Bureau (CFPB) and put into action on January 10, 2014. The new rule provides banks and mortgage lenders with certain liability protection when originating Qualified Mortgage (QM) loans, which allows them to make home loans with less fear of buybacks, lawsuits, and financial loss. As a result, some lenders have begun to originate so-called “non-QM loans,” which as the name implies, do not comply with the Qualified Mortgage rule. The downside to providing these loans is the lack of liability protection, along with a less liquid secondary market.
The upside is that lenders can create a niche for themselves by offering loans many other institutions choose not to originate.
Non-QM Does Not Necessarily Mean High Risk
First and foremost, a non-QM loan is not inherently high-risk, nor is it subprime. It is simply a loan that doesn’t fit into the complex rules associated with QM.
In fact, many of these loans will actually require extremely high FICO scores, along with other strong borrower attributes like steady jobs and plentiful assets.
However, because of the rules and scrutiny associated with non-QM lending, banks will probably keep them on their own books instead of selling them off to investors on the secondary market.
Interest-Only Loans Are Non-QM Territory
For example, interest-only loans are a popular type of mortgage that are not covered by the QM rule. Many lenders will still originate these loans because there is a demand for such a product. These will probably be the most common loan type under the non-QM umbrella, with high-net-worth borrowers the likely target. So the risk isn’t necessarily high if they’re being doled out to rich folk who want to invest their money in places other than the mortgage.
Stated Income Is a Feature of a Non-QM Loan. Another common feature of a non-QM loan is the documentation type. Many non-QM loans allow for stated income, whereas QM-compliant loans must be fully documented via standard income underwriting protocol.
So if you can’t provide fully documented income, you might have to go the non-QM route, even if you have stellar credit, assets, and employment history.
Loans with DTI Ratios Above 43% Might Be Non-QM.
At the moment, loans backed by Fannie Mae and Freddie Mac, or those insured by the FHA, VA, or USDA, are exempt from the 43% debt-to-income ratio limit imposed by QM. In other words, many loans can still exceed 43% DTI and get the QM seal of approval.
However, loans that are in the jumbo realm (loan amounts above what the aforementioned agencies accept) and above 43% DTI are most likely non-QM territory.
This explains the recent trend of using assets to qualify when income falls short, which still satisfies the Ability to Repay rules required for all mortgages.
40-Year Mortgages and Neg-Ams Are Non-QM Loans. Additionally, mortgages with terms beyond 30 years are also prohibited under the new QM rule. Again, lenders may extend financing with terms beyond 30 years, offering 40-year mortgages and other products that don’t conform to the QM definition to meet public demand. But they won’t come with the protection afforded under QM.
Another loan program that was highly popular during the previous housing boom was the option arm, its main feature being negative amortization. This too is banned under the new QM rules, and could be another source of production for non-QM lenders if these loans become popular again in the future, though that remains to be seen and seems unlikely.
But they believe it could potentially grow to hundreds of billions annually in the future (~$400 billion), though that hinges on the temporary QM allowances going away once Fannie Mae and Freddie Mac exit conservatorship. In other words, “non-QM” could be a household name in the next decade, just like FHA or VA is today.
We specialize in residential lending solutions for clients who don’t fit into typical lending categories. Our Super Jumbo products offer no-tax return, Bank Statements Programs and a very well priced Foreign National loans. We are very seasoned in the complex super jumbo loan market, we offer the highest level of home loan expertise and service to maximize our clients’ financing needs.
What makes Jeff Edwards Group an ideal loan choice for you? We focus on large transactions for high net-worth clients. Most have signiﬁcant assets but ﬂuctuating incomes, or maybe no income due to a recent sale of a company. We also work with Foreign Nationals who earn income outside of the United States, or are buying in the United States for the ﬁrst time a second home.
What we offer in the Non-QM Segment?
Tailor Made Solutions for High Net Worth
• Complex vesting structures: Irrevocable trusts, revocable trusts,blind trusts, LLC’s and Limited Partnerships
• Cross collateralization of single family dwellings
• Common sense underwriter with high success in Non QM cash ﬂow analysis, balance sheet and multi-layered tax structures
Flexible Lending Solutions
• No tax return jumbo loans up to $4.5 million
• Loan products for Foreign Nationals up to $25 million
• Competitive ARM rates, Interest Only up to $15 million
• Turn key solutions for construction, multi-family and bridge loans
A Loan Origination Leader in Southern California
• Proprietary, long standing relationships with senior management of regional private banks.