But that isn’t what compelled me to write this opinion letter to the readers of HousingWire. Indeed, it bears highlighting that the Non-QM market is increasingly critical to helping specific segments of the population who do not fit the conventional “box” achieve the American Dream.
Non-QM lending allows borrowers with nontraditional income sources, such as self-employed individuals, freelancers, and gig workers, to qualify for mortgage financing. This is because traditional income verification requirements for government or government-sponsored loans, including those from Fannie, Freddie, or Ginnie Mae, may not be applicable.
Non-QM also accepts borrowers with past credit issues that have been remedied and borrowers with limited credit history (often recent immigrants), who conventional lenders tend to deny.
Even more exciting is that the secondary markets recognize that the collateral performance of Non-QM RMBS provides a solid and diverse investment for their portfolios. Indeed, in our recent deal, Standard & Poor’s (note: every major credit ratings agency has reviewed our deals (on at least one occasion) said in its presale that the pool generally consists of loans to high-credit-quality borrowers with considerable home equity, as evidenced by the pool’s weighted average original CLTV ratio of 68.91%. Additionally, third-party due diligence is conducted on 100% of the securitized loans, utilizing firms that have been reviewed and approved by S&P.
Fitch notes on a previous transaction that borrowers in this pool have relatively firm credit profiles, with a Fitch-determined 731 weighted average (WA) model FICO score (735, per the transaction documents), a Fitch-determined 43.5% debt-to-income (DTI) ratio (33.3% DTI, per the transaction documents) and an original combined loan-to-value (CLTV) ratio of 71.6% (71.7%, per the transaction documents) that translates to a Fitch-calculated sustainable LTV (sLTV) ratio of 78.0%.
Mortgage market expectations are projected to favor the non-QM model for the next two years and beyond. Just ten years ago, the Consumer Finance Protection Bureau issued regulations to create a safe and sustainable alternative home loan model, laying the groundwork for the non-QM success story. A decade later, non-QM loans are considered a “stable, crucial option” by mortgage industry analysts.
March 2025 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group now expects mortgage rates to end 2025 and 2026 at approximately 6.3 percent and 6.2 percent, respectively, each a downward revision of three-tenths of a percent from their prior forecast.
The lower mortgage rate forecast offsets the softer economic outlook for home sales. Fannie Mae analysts revised their outlook for total home sales upward to 4.95 million in 2025, up slightly from 4.90 million in the prior forecast. Single-family mortgage originations are expected to total $1.94 trillion and $2.28 trillion in 2025 and 2026, respectively. These represent slight upward revisions with non-QM uniquely poised to take a greater market share.
Non-QM lending has emerged as a crucial component of the modern mortgage landscape, offering a flexible and inclusive pathway to homeownership for a diverse range of borrowers. As the U.S. economy continues to evolve and traditional lending standards prove inadequate for many individuals, non-QM loans have filled a critical gap, ensuring that the dream of homeownership remains attainable for a broader population segment.
The role of non-QM lending is expected to grow in the coming years. It will become an even more essential tool for shaping the future of U.S. housing finance and helping many people achieve the American Dream.
Victor Kuznetsov is the Co-Founder and Managing Director of Imperial Fund Asset Management.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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