Why Non-QM Loans Are Not The Same As Subprime loans.

April 15, 2022

Today, Non-Qualified or Non-QM loans are growing in popularity, but there’s some confusion about what they really are. Let me start with the elephant in the room, they are not the same thing as subprime loans. Non-QM loans are a great solution for brokers to consider in helping those customers qualify for loans they otherwise would be excluded from under conventional underwriting guidelines.

There are many borrowers who fall outside of traditional underwriting guidelines, but they are strong candidates for homeownership. For example, a borrower may have a 700+ FICO credit score but are self-employed; or a high debt to income ratio; or a recent credit blemish; or a borrower with a high net worth who writes off most of their tax obligation. These types of borrowers do not qualify for conventional mortgages. Non-QM loans are a perfect solution for these borrowers.

Regulation Z and Non-QM Loans

Non-QM mortgages must adhere to the same Regulation Z (Reg Z) requirements that conventional loans do. In 2010, the Dodd-Frank Wall Street Reform Act was passed to enhance Reg Z in response to the mortgage meltdown. Consumers now have even more protection than ever.

The Ability-To-Repay Rule in Reg-Z

The Ability To Repay Rule (ATR) requires a lender to make a reasonable, good-faith determination of a consumer’s ability to repay a residential mortgage loan according to its terms. To do this, lenders review assets, employment, credit history, and monthly expenses. HomeXpress Mortgage’s prudent underwriting practices are conducted in accordance with the “general ATR standard”. This standard imposes no limitations on loan features, loan terms, or points and fees. We qualify payments on the greater of a fully indexed rate or an introductory rate. We consider and verify mortgage-related obligations, income and/or assets, employment status (if applicable), simultaneous loans, debt, alimony and child support, DTI or residual income, and credit history. At HomeXpress Mortgage we have a “pre-submission” income desk that thoroughly reviews borrowers’ bank statements, DTI, and housing history to help applications move smoothly through the underwriting process.

Work With Experts in Non-QM Loans

HomeXpress has been committed to servicing the non-QM market since our inception in 2015. We understand this business and fund 70% of all non-QM loans that are submitted. Our underwriting turn-times are under 48 hours. Contact one of our experienced and knowledgeable Account Executives at (855) 598-1430 to learn how HomeXpress can help you grow your non-QM business.