restrictions would deal a deathblow to their businesses. But with the proper precautions, there’s no reason why non-QM loans can’t be a profitable channel for brokers.
That’s according to Chris Haspel, head of capital markets at Ethos Lending. Speaking at the recent NAMB National conference in Las Vegas, Haspel said that its base, the QM rule is simply common sense.
“The lender must make a good faith estimate of the borrower's ability to repay,” he said. “That in itself shouldn't be controversial. A lender should make sure the borrower can repay.”
Under the qualified mortgage rule, mortgage lenders face greater legal liability if they make loans without ensuring borrowers’ ability to repay. Mortgage lenders who originate “qualified mortgages” enjoy greater legal protections should those mortgages default.
But it’s the conditions loans have to meet in order to become “qualified” that many lenders find onerous. That’s why Haspel sees a future in which carefully vetted non-QM loans will become more and more prevalent.
But if non-QM loans mean greater liability, how can originators protect themselves? The answer, Haspel said, is attention to detail.
“Make your credit boxes as safe as you can. That's going to minimize the number of loans that default,” he said. Non-QM also means even greater attention to residual income underwriting.
“The residual income underwriting part of this is not a natural thing for mortgage lenders,” he said. “…What’s different now is you can’t just look at the final file. You have to know everything that went into manufacturing that file.”
So if there’s benefit to be had in the non-QM market, who stands to gain? Many of the larger retail banks don’t want to touch non-QM yet, and correspondent channels are still skittish.
“We figure bank retail channels will be light at the outset,” Haspel said. “There are many banks that will not do any non-QM at all. So we think bank retail may get there eventually, but that's going to be slow and very careful. We think the broker channel is ideally suited for non-QM. … We think that's going to be the channel by which non-QM opportunities arrive.”
With the advent of the CFPB’s qualified mortgage rule in January, many originators worried that