Non-qualified mortgages (often referred to as non-QM loans) are products are designed to potentially accommodate specific categories of “non-traditional” home loan borrowers. Here is some background on how non-QM mortgages entered the scene, and information on how many non-QM loans are structured.
How Non-QM Mortgage Began
When certain regulations were implemented in response to the subprime mortgage crisis, there was a gap left in the consumer mortgage market. This gap left some borrowers – namely, real estate investors and the self-employed – unable to attain the mortgage loans they needed in order to finance the purchase of a home.
Likewise, other applicants found their access to financing cut off because of minor blemishes on their credit reports; for these individuals, even non-conforming loans were off limits. As a result, these consumers were forced to stay in the increasingly high-priced rental market and miss out on the equity, tax benefits and pride of homeownership.
In response, some mortgage lenders took initiative to fill the widening gap and provide expanded options for these consumers. What they developed was a collection of wholesale mortgage products now categorized as non-QM.
How Non-QM Mortgage Loans are Structured
Typically, non-QM mortgage loans involve three key components:
- Revised credit requirements with shorter seasoning times, lower credit score thresholds
- New requirements for loan-to-value (LTV) and debt-to-income (DTI) ratios
- Potentially higher down payment and income requirements
These criteria are based on a principle embraced by many non-QM originators: Stable incomes pay mortgages, not credit scores.
Myths about Non-QM Mortgage
In the post-subprime era, many mortgage products are subject to public scrutiny; non-QM loans are no exception. One myth about non-QM mortgage is that it is an extension of subprime. This is not true. Non-QM lending is not subprime lending; rather, it is a niche of the mortgage industry that is comprised of responsible, regulated alternative lending products.
Another myth about non-QM loans is that borrowers do not need to show proof of income. This is also untrue. Just like a qualified mortgage, approval of a non-QM mortgage is contingent on the borrower’s ability to pay. However, the lender issuing the loan may require alternative forms of income documentation. For example, self-employed individuals may be required to show bank statements rather than tax returns in order to verify their reliable income sources. At Wholesale Capital Corporation, this is what is known as a Bank Statement Loan.
Finally, one pervasive myth about non-QM mortgage is that the loans are not compliant with government regulations. This is also false. In accordance with the Dodd-Frank legislation of 2010, non-QM loans follow mandates for down payments, income, and debt-to-income ratio. Non-QM loans are not exempt from mortgage industry regulations. Additionally, they are just as subject to the lender’s underwriting guidelines as their QM counterparts.
Non-QM mortgage loans are not high-risk loans. They are responsible loans for non-traditional mortgage borrowers, including real estate investors and the self-employed. To learn more about non-QM products – including bank statement loans, an investor cash flow program, Asset Qualifier and a program designed for foreign national borrowers – contact Wholesale Capital Corporation.
Wholesale Capital Corporation is not affiliated with or acting on behalf of or at the direction of the Federal Housing Administration (FHA), Department of Veterans Affiars (VA) or any government agency/government-sponsored entity. WCC is licensed by the California Bureau of Real Estate, Broker License #01147747 and CA Finance Lender’s License #603K610, NMLS# 9873. Also licensed in Arizona by the Arizona Department of Financial Institutions, MB# 0937346 . Equal housing lender.