What is Non-QM Lending?

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What is Non-QM Lending?

aka Alternative / Private Lending

What is Non-QM lending? Is it sub-prime? Is it still the wild west? Contrary to many beliefs, Non-QM loans are not the same as before the great recession. The requirements to qualify are no longer just being able to fog a mirror with breath. They are government regulated and must be able to demonstrate the Ability-To-Repay.

After the financial crash in the late 2000s, the lending sector faced unprecedented reform. Rules which were unwritten before the crash were now inked into law. Minimum standards were raised in determining whether applicants qualified to receive a mortgage and lenders would be held accountable if certain checks and balances were not met: enter the Ability-To-Repay rule (ATR). Lenders were already petrified to lend due to the uncertainty in the market and regulators knew the updated laws would only raise apprehension. Due to this, the Consumer Financial Protection Bureau (CFPB) provided examples of how to satisfy ATR via government-created guidelines; they named these loan-types Qualified Mortgages (QM loans). If a lender qualified a customer using QM guidelines and were subsequently sued for originating a loan when they should not have (based on a customer’s ability to repay), courts are likely to assume the Ability-To-Repay was indeed met and dismiss the suit.

Conversely, the CFPB encouraged lenders to also create their own responsible, data-driven guidelines to qualify customers. Why? Because many customers still qualify and satisfy the Ability-To-Repay rule, just not necessarily by the guidelines of a QM loan. QM guidelines were created as an example, not as the rule, of how to lend. Only lending to customers who satisfy QM guidelines would leave a large portion of qualified customers unable to obtain a loan and subsequently create an unhealthy real estate market and economy.

The easiest way to distinguish a QM loan vs a Non-QM loan is determining who created the guidelines. If created by a government (or government-controlled) entity, it is a QM loan. If the lender created the guidelines, it is a Non-QM loan. Regardless of the entity, all loans must satisfy the Ability-To-Repay rule. QM loans are assumed to have satisfied, while a Non-QM loan would have to demonstrate how it was satisfied.

Among customers’ largest dilemmas is finding a broker with experience who understands the Non-QM market. The requirements and process to qualify are different, often significantly, and may even vary from lender to lender. Why is Nile Mortgage the right choice? The owners were blessed with the opportunity to work exclusively in alternative lending for one of the largest private lenders in the nation, and were also the top reps. They mastered the craft while most were only working on standard lending options.

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