“Automated underwriting for agency [Fannie Mae and Freddie Mac] products is definitely much easier because there’s a defined set of scenarios that you have to meet,” says Keith Lind, executive chairman and president of Acra Lending (a non-QM lender formerly known as Citadel Servicing). “With non-QM, the scenarios are just everywhere, and it requires an expertise and a skill set that takes years to learn.
“Could someone one day come up with the right technologies [for automating underwriting of] non-QM? It’s going to happen at some point, or at least make it much easier.”
Non-QM mortgages, Lind explained, include everything that cannot command a government, or “agency,” stamp through Fannie Mae, Freddie Mac or via another government-backed loan program, such as the Federal Housing Administration. It’s a wide and growing segment of the mortgage-finance market that is expected to expand rapidly as rising home prices, changing job dynamics and upward-sloping interest rates push more borrowers outside the agency envelope.
The pool of non-QM borrowers includes real estate investors, property flippers, foreign nationals, business owners and the self-employed, as well as a smaller group of homebuyers facing credit challenges, such as past bankruptcies.
“We are looking at the current $25 billion-a-year market [for non-QM] growing to $200 or $300 billion [over the next several years], and it’s going to require automation,” said Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, part of Angel Oak Companies, a long-time player in the non-QM market.
“Automation just increases efficiencies,” Hutchens added.
Angel Oak Companies, Hutchens said, is focused on originating and securitizing non-QM loans to the self-employed and real estate investors, which represent about 90% of the company’s loan-origination base. And it is growing fast, he added.
“We’re expecting close to 100%…