Mortgage originators interested in meeting the robust consumer demand for non-qualified mortgages have historically had tough choices to make when offering these products. Non-QM products are mortgages, such as jumbo loans or interest-only loans, that don’t fit into the qualified mortgage (QM) box.
Uncertain pricing and qualification, paired with inefficient processes, have normally forced originators to weigh the opportunities available for serving this non-QM market against concerns of slowing down production and disappointing clients. Recent advancements in technology in the non-QM niche, however, have led to automation previously only available for agency products.
This has changed the non-QM game board. It has resulted in more pricing certainty, accurate qualification, shorter turn times, increased potential for originator profits and an improved borrower experience.
Challenges abound
Time is a limited resource, and mortgage originators need to get it right, from the initial call with a client to funding. The originator’s job is to ask the right questions and then determine the best products and pricing that fit a client’s needs.
In the past, the only tools available for quoting a non-QM product were a stack of rate sheets. If a client is shopping outside agency programs, it already means that their situation is unique and complicated.
Combing through guidelines for several products from various investors to see which options exist for a scenario can easily lead to errors. Missing a detail about a late mortgage payment or a self-employment restriction could turn into embarrassment and frustration — and often lost business during underwriting.
Pricing can be even more challenging. Dealing with the complex calculations that stem from the numerous variables that come into play in determining the cost of non-QM loans is a daunting task to undertake manually. Originators tend to find that process stressful, time consuming and prone to frequent errors. It’s no wonder many brokers choose to focus on other business, despite the great potential in the non-QM space.
Automation solutions
The increased complexity of non-QM qualification and pricing has meant that traditionally these programs were left out of industry-standard automated-pricing engines. This is changing, and improved technology has led to the creation of non-QM automation tools that deliver the same standards mortgage originators are used to finding for agency QM products.
This automation offers endless possibilities to a whole new pool of buyers who didn’t qualify for agency loans — for example, mortgages meeting the origination guidelines for later purchase by government-sponsored enterprises Fannie Mae or Freddie Mac. These new systems account for the many factors that go into pricing a non-QM product, including credit and occupancy information; housing and personal events, such as foreclosures or bankruptcies; loan amount; employment status; foreign national status and more.
Most, if not all, non-QM pricing engines walk the user through a series of questions to ask borrowers when collecting the data needed for effective pricing. It’s typical that clients may not have all the necessary information immediately available and will have to source some figures and documents. The more sophisticated and reliable engines allow a file to be saved and resumed later, without losing any work in progress.
A key difference between a non-QM engine and its agency predecessors is the integration of credit grading. The originator can receive accurate pricing after putting in various data on the following: FICO credit scores; mortgage late payments; major housing events; foreclosures, deeds in lieu or bankruptcy status; and short sales.
Qualification certainty
The digital engine provides the same accuracy when it comes to qualification. The cumbersome process of manually pairing nuanced scenarios with a suite of product options has been significantly upgraded. There’s no guesswork when it comes to which options to discuss with a client.
Once the data is entered, the pricing engine returns the eligible products along with a full needs list by documentation type. This allows for an easy presentation to the borrower and confidence that there will be no surprises between application and closing.
The non-QM industry also is putting technology to work to improve all aspects of the process. Applications and supporting documentation can be electronically submitted. This enables originators to submit a clean and organized file directly to underwriting while tracking its progress.
Greater efficiency means these complex files take considerably less time to price, qualify, originate and process. Originators can now have confidence entering the non-QM sphere knowing that their teams won’t be bogged down working with these loans. They can focus on building their pipelines and growing their businesses.
Faster and more secure
Process improvements also lead to faster underwriting and reduced turn times. Lenders report use of automation can shorten turn times from 55 to 60 days to under 30 days. This means non-QM loans are closing faster than agency products in many cases.
Getting to the closing table quickly could create significant opportunity within this segment of the market. Homebuyers and investors who have avoided non-QM lending in the past due to complexity, uncertainty and long waits in underwriting will likely find the new alternatives to agency loans much more appealing. Flexible products and common-sense underwriting mean investors can take on more projects and use these products as an integral part of a wealth-building strategy.
In addition, digital delivery transfers information and documents securely and fully encrypted. Common practices of accepting files and supporting documentation via fax or e-mail attachments in the non-QM space are noncompliant and unsafe for the borrower. Technology providing the high-level security that meets or even exceeds the standards set in agency financing adds legitimacy to non-QM lending and builds confidence in both originators and clients to consider these products.
Electronic submission and storage allow for huge improvements in data integrity. That is crucial for both compliance with state and federal regulations and business growth.
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Use of technology to advance the non-QM space is creating opportunities for mortgage originators, homeowners, homebuyers and investors. Innovative use of these products continues to move the industry forward. For those reasons and more, it’s important to partner with a company that offers you the tools to be successful within the non-QM space.
