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There’s no question that 2022 has seen serious changes to the housing market. Between significantly fewer refinances, rising mortgage rates and housing inventory nearly cut in half since 2020, loan officers (LOs) and brokers face a pivotal time where adaptation is a must for success. In a housing market vastly different from the pre-pandemic period, how can industry professionals position themselves to achieve growth despite these current obstacles?

When it comes to business growth this year and beyond, industry experts agree that 2022 is the year of the non-qualified mortgage (non-QM) loan. With nearly 50% of the workforce today comprised of freelancers, gig-workers, the self-employed and small business owners, fewer borrowers fit the traditional mold required to secure conventional loans. However, not all LOs and brokers are set up to take on an influx of non-QM business.

“Our workforce has evolved drastically in recent years. More people are diversifying their income streams and opting to work for themselves or through real estate investments. While this segment of the population may be completely credit-worthy, they don’t always fit the traditional qualification guidelines to get a home loan,” said Jeff Gravelle, co-head of production at Newrez. “As that sector continues to grow, so does the potential for loan officers and brokers to bring them on as customers with the right type of products.”

“Non-QM loans are harder than other loan products, so lenders must invest the time, resources and education into their sales teams and brokers to learn the intricacies of non-QM products. That way they’re better equipped to sell and serve their customers with these innovative products,” added Gravelle.

From processes and procedures to incorporating the right tech stack, suiting up to start offering non-QM products means first finding the right business solutions. Partnering with a team that understands how to approach home loans for borrowers with complex finances can make the difference between another year of profit growth and the unfortunate possibility of loss in business, making it one of the most crucial decisions for any lender.

Bracing for the challenges of non-QM

With an anticipated doubling in market share in 2022, non-QM products are top of mind for almost every mortgage industry professional. As LOs and brokers prepare to expand their selection of loan offerings, gaining a firm understanding of available products and how to best employ them for their customers will be essential. That means getting acquainted with the challenges common to the non-QM market.

Although the addition of non-QM loan options can undoubtedly end up being a lucrative move, the sector presents certain hurdles that not all lenders are prepared to clear just yet. For instance, processing non-QM loans manually can be prone to human error, cutting into the efficiency of a business. With higher-risk loans like non-QM, the need for optimization needs to be underscored from the outset to avoid costly mistakes.

There is also the matter of efficiency versus increased lending cost. With non-QM in a current transition state, forecasting future demand levels can be tricky. While investing too little in additional capacity and resources could result in difficulty managing increased demand, the alternative could mean investing too much and having demand not meet expectations. In either event, the outcome is less than ideal from a business perspective.

In addition, handling regulatory compliance and risk management will be a big concern for lenders breaking into the non-QM market. As government regulations constantly shift, keeping on top of and adhering to these changes can become a time-consuming task. Juggling their own compliance risks along with the ability-to-repay rule as it applies to non-QM loans means an additional component to be kept up in the air, and dropping the ball could have heavy consequences.

It’s not uncommon for worthwhile investments to carry a certain amount of risk, and non-QM loans are no different. Luckily, when it comes to incorporating non-QM products into your loan offerings, risk mitigation can be as simple as partnering with the right team and learning to understand the needs and trends of a new customer population.

Unique loans for unique borrowers

One of the most meaningful advantages of offering non-QM options is the ability to tap into a market of historically underserved borrowers. These borrowers may have already experienced rejection when applying for more traditional loans due to factors like having less than perfect credit, high debt-to-income ratios, low reportable income and a number of other increasingly common reasons such as being self-employed or freelance workers.

More and more frequently, these factors don’t impact a potential borrower’s ability to repay. They are simply being excluded from the homebuying market due to traditional loan requirements that don’t meet the needs of their unique finances. From first-time homebuyers to those looking for vacation or investment properties, non-QM loans come in all shapes and sizes, ideal for a variety of borrowers in a variety of financial positions.

With so many different types of borrowers beginning to look towards non-QM for their lending needs, LOs and brokers are wise to incorporate a diverse set of loan options. This means partnering with a company that offers non-QM options tailored to satisfy the needs of several borrower types will be crucial to growth in 2022 and the years to follow.

Smart Series by Newrez

The professionals at Newrez understand that borrower needs constantly shift and they are dedicated to providing a product line that evolves right alongside these changing needs. To meet the growing demand of unconventional borrowers, Newrez has focused on creating a series of non-QM products ready to satisfy the unique needs of a new generation of homebuyers.

Providing bespoke products for different types of non-traditional borrowers, the Newrez Smart Series is the perfect solution for LOs and brokers who want comprehensive loan offerings that work for borrowers who don’t fall within the traditional qualifying guidelines. The Newrez non-QM suite is comprised of three different loan types, each designed for a different kind of borrower.

Ideal for the self-employed borrower, SmartSelf is one of three non-QM products that make up the Smart Series. Ridding these borrowers of the requirement to provide a W-2, SmartSelf allows for alternative income documentation to qualify for a mortgage. With the number of self-employed borrowers only continuing to grow, this is a huge opportunity for hopeful homebuyers who have been previously rejected due to their form of income.

Falling outside the eligibility requirements for standard agency and prime jumbo programs due to a credit event or isolated lapse in credit performance is another common reason for mortgage loan rejections. For borrowers in this position, SmartEdge offers competitive financing solutions and a gateway to homeownership even in the event of a credit history that is slightly less than spotless.

Lastly, a non-QM loan explicitly designed for experienced real estate investors, SmartVest is perfect for those seeking to purchase or refinance an investment property that is owned for business purposes. This loan allows borrowers to buy additional investment properties with less documentation than conventional loans. Moreover, borrowers can access equity in a current portfolio of homes to purchase additional properties or use the market rent from the subject property to qualify.

Why partner with Newrez?

To guarantee borrowers and investors financial success well into the future, Newrez has designed a process from application to closing that makes for a seamless and stress-free home buying experience. With knowledgeable non-QM underwriters with specific Smart Series training and certification, a dedicated operations team keeping the wheels turning behind the scenes and the right tech to support borrowers each step of the way, partnering with Newrez will keep customers satisfied and profits growing as borrower needs evolve.

“We are seeing a large number of lenders who are new to the Non-QM market issue their Non-QM products. Non-QM lending and underwriting is a skill acquired over time with experience, as it is scenario-based lending that is significantly different than what any conventional underwriter is used to doing,” said Mike Smeltzer, senior vice president of Non-QM lending at Newrez. “It is important to choose a lender that has experience in this field and the ability to deliver with customer satisfaction. Newrez has the expertise and underwriting knowledge to deliver that type of positive customer experience.”

Newrez is committed to making the lending experience painless and possible for a new type of homebuyer with the help of their non-QM products. To learn more about partnering with Newrez, visit newrez.com.