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Nov 19, 2021

Non-QM gives you new opportunities to help you better serve your buyers and build your business. Non-QM gives credit access to self-employed borrowers who may have been locked out of the market before.

As industry giants Newrez and Caliber Home Loans, Inc. combine platforms, a wider range of loan products is now available to Caliber partners. Notable within the new line of products is the array of non-qualified mortgage, or non-QM, loans.

These loans are especially suited to the current market. They appeal to entrepreneurs, those heavily invested in stock, and real estate investors who have been locked out of the market due to the nature of their income streams. We’ll help you understand the value non-QM loans can bring your clients. We will also dispel some misconceptions about non-QM loans, so you can move forward with greater knowledge and confidence.

The Basics of Non-QM Loans

With the Dodd-Frank Act of 2010 came a new standard for qualifying mortgages. While intended to provide consumer protection, the Act also introduced more rigid requirements for income verification. These standards prohibit some strong borrowers from obtaining loans due to their income sources or other limitations. In response, non-QM loans were developed to allow everyone to have access to the American dream of homeownership.

Non-QM loans don’t conform to federal standards and restrictions and are not government-backed, so they can have greater flexibility. Caliber EVP David Schroeder highlights the differences between agency and non-QM loans saying, “Agency loans are government loans. They move at the speed of government. Whereas non-QM loans move at the speed of the market.”

The Benefits of Non-QM Loans

The primary benefit of non-QM loans is allowing for more types of income verification. It permits those previously locked out of the market to enter. For example, agency loans usually look at a borrower’s tax return to verify income, but for entrepreneurs, this isn’t the most accurate reflection of their income stream. Savvy business owners want to reduce their tax liability, so a tax statement isn’t going to be the best indicator of financial stability. Those heavily invested in the stock market or property will also have a difficult time proving their ample ability to pay the mortgage using agency loan criteria.

Non-QM loans are also scenario based. They aren’t a rote equation of plugging in numbers and seeing if the borrowers qualify. They’re an innovative non-static product. The process of approval is more like traditional underwriting. This means the loans have a human touch and allow for more flexibility with their borrowers. About 30% of non-QM loans have exceptions, but this doesn’t mean the borrowers aren’t strong.

Mike Smeltzer, SVP of non-QM products at Newrez, reports the average FICO score for non-QM borrowers is 720 and their average LTV is in the low 70’s. “These are mortgage-backed securities for good borrowers,” he states. “The default numbers are incredibly low.”

What Non-QM Loans Does Caliber Offer?

Currently there are three basic types of non-QM loan products. Their primary difference is the way financial stability is verified for each, so each loan has a different client demographic in mind.

  1. SmartEdge: This is for your investor borrowers who fall just outside of the standard agency and prime jumbo programs. It is a full documentation, high-balance loan that looks at borrowers’ portfolios to prove sufficient income. Money managers tend to send their clients to originators who provide these, especially since the originators, unlike banks, won’t be soliciting their clients for funds.
  2. SmartSelf: This loan best fits entrepreneurs and business owners. It uses bank statements and/or asset amortization to qualify.
  3. SmartVest: This loan is for your experienced real estate investors with multiple financed properties and complex finances. SmartVest uses market rents to establish the ability to pay back the mortgage debt. Despite being financially savvy, many real estate investors don’t know this loan exists. You can provide your client with a loan even when agency limitations, such as no more than ten investment property mortgages, keep them from the market. This product will bring you repeat business from avid real-estate investors who want to grow.

Learn More With Caliber

Keeping with Caliber’s value of educating our partners, we recently hosted Smart Series webinars on non-QM loans for our brokers. Additionally, Caliber provides a non-QM help desk where underwriters can walk brokers through their borrower’s situation and help them structure the loan before they submit it for approval.

These are just a few of the resources Caliber provides to increase our partners’ industry knowledge and grow their business. If you’re not yet a partner with us, now is a great time to join. We can help you reach your goals and get the best loans for your clients.