Mortgage originations remain broadly anemic in the face of high housing costs. Although origination volume grew more than 20% year over year in 2024, it was still 20% below pre-pandemic production levels. Despite these dreary numbers, one bright spot has been consistently bucking the trend: the broader non-QM market.
Non‑QM loans represented about 5% of all originations in 2024, up from 3% in 2020, according to data from Cotality. In 2024, production was 10% higher than 2019 levels, according to Inside Mortgage Finance.
One of the sector’s largest participants expects its non‑QM production to have expanded by roughly 30% by the end of 2025. In a business starved for units and yield, non‑QM has moved from niche offering to strategic necessity.
Why the acceleration?
Some non-QM growth reflects the snowball effect of greater familiarity and acceptance. But that only paints part of the picture. Several converging forces in recent years have propelled the sector’s sustained growth against broader residential lending headwinds.
About 15 million Americans, roughly 10% of the workforce, now classify themselves as self‑employed. As traditional lending has become optimized for the efficient underwriting of wage earners, these credit-worthy entrepreneurs are increasingly reliant on non-QM underwriting practices to document their income and assets.
Real estate investors are increasingly choosing to finance their purchases rather than pay in cash. Many of these transactions are debt-service coverage ratio (DSCR) loans, which qualify based on the property’s rental income rather than the borrower’s personal income.
Non-QM production can typically generate up to a point or more of additional margin by virtue of being prime credit quality and higher coupon than conforming loans. Coupled with higher average loan balances, this improves overall profitability.
The average non‑QM borrower had a 776 FICO in 2024, virtually on par with conventional conforming borrowers, dispelling the subprime stigma that non-QM borrowers represent inherently riskier collateral.
Altogether, these growth trends help to explain why analysts project non‑QM collateral will remain one of the largest growing sectors in terms of overall volume at least through 2026.
The non-QM audience
Although guidelines vary by lender, five types of borrowers dominate today’s non-QM pipelines:
- Self‑employed – Bank statement and 1099 programs provide alternatives to tax returns by allowing underwriters to average 12 to 24 months of income deposits. This approach offers a clearer, more straightforward picture of income for certain borrowers, like those who are self-employed.
- Real estate investors – DSCR loans qualify based on property cash flow rather than personal income, making them well-suited for investors focused on rental performance.
- Asset-rich households – Asset depletion mortgages can turn idle brokerage and retirement balances into attributed income, enabling affluent clients, like the growing demographic of retirees, to preserve liquidity.
- Foreign nationals – Specialized programs accommodate international credit reports and income documentation. Some non-QM products also allow borrowers to qualify on assets, rather than income — a boon for foreign nationals who lack a traditional America-based income stream.
- Credit‑event “come‑back” – Seasoning options allow those recovering from bankruptcy, foreclosure or significant life events to reenter the market when they are financially able, rather than when arbitrary government-sponsored enterprise timetables allow.
Non‑QM products also appeal to prime borrowers seeking features that are difficult or even impossible to offer in the qualified‑mortgage (QM) box, such as interest‑only payments or financing for GSE ineligible property types. Additionally, “unique income streams” typical of many non-QM borrowers are recognized for their inherent degree of prime quality.
Solutions to start
While there are obstacles and challenges to launching any new product, there are proven solutions that any prepared lending institution should be able to implement to meet these hurdles head-on.
Partnering with specialists is a good starting point. Aggregators like Verus can deliver ready-made guidelines, pricing engines and due diligence, lowering the barrier to non-QM entry for interested retail and correspondent shops.
Another technique is to augment an existing applicant base. Given that there are numerous niches across borrower, property and product types, lenders can tailor non-QM offerings to meet the needs of qualified applicants instead of turning them away.
Investing in education is a practical way to preempt future issues. Leading wholesalers require recurring certification courses for their staff that cover common non-QM “must knows,” like income‑calculation methodologies, fraud red flags and post-close quality‑control protocols.
The outlook
Many mortgage market analysts expect double‑digit non‑QM growth through at least 2026. Investor appetite remains robust, as does borrower demand, and agency overlays continue to sideline otherwise credit‑worthy borrowers.
Non-QM is the largest securitized non-agency mortgage product in 2025. This trend is likely to continue. The fundamentals also look sound: 2024 vintage non‑QM loans closed at an average 75% loan‑to‑value with a 776-credit score — metrics indistinguishable from conforming production.
Deal volume continues to increase, and pricing spreads have remained relatively stable, even during recent risk-on/risk-off events over the past few years. Non‑QM lending has evolved from a specialty offering to a mainstream strategy for lenders in need of pipeline diversification. It supplies volume and margin that lenders can rely on and the flexibility borrowers need in an economy where income is increasingly non‑traditional.
Lending institutions that master documentation, liquidity management and sales‑force training today will capture a disproportionate share of a market projected to grow another 30% in 2025 and beyond.
