Capital markets have gotten increasingly comfortable with non-QM loan products, and lenders have gotten increasingly better at putting reasonable processes into place to determine the borrower’s ability to repay. For instance, what happens when the self-employed contractor with multi-millions doesn’t qualify for a qualifying mortgage because he doesn’t have the documentation needed? The guy with the ten-million-dollar net worth and perfect credit should be an ideal borrower, right? In the last three years, lenders and the capital markets have started to serve these people and fill the gaps. The technical requirements of QM, however, exclude many creditworthy Americans. It is a complicated rule, but ultimately QM lenders must comply with stringent rules to make sure the consumer mortgage borrower can repay their loan. To reign in lenders and ensure that borrowers can afford the loans they are receiving, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act that put into place the QM rule.

Leading up to the financial crisis, there were all kinds of innovative loan products with creative rate structures on the market that ultimately borrowers couldn’t pay back. The concept of a Qualifying Mortgage originated as a result of the 2008 financial housing crisis. So, what actually is a non-QM loan? A good place to start is in defining QM or Qualifying Mortgage. It seems all the lenders these days are offering a hip new Non-QM product and encouraging brokers to broker non-QM loans. If you’re looking for a competitive loan which can be customized to your needs, consulting with a company that closes their own loans is a solid option.Non-QM has become a new buzzword. Further, while regulations are applied, the infrastructure to prevent fraud is still being developed on both sides of the table, as in-house underwriting was first adopted in many cases only 5-6 years ago.

If a small company is doing the lending, they may lack the on-hand capital to recover if a loan goes bad. While the convenience of offering underwriting in-house is huge for the customer, it does present some risks to the lender. In those circumstances, the loan amount, the borrower income, or a compilation of circumstances may be the reason. Even when underwriting is centralized, decisions are still made based on the borrower’s income-and in some cases, the loan may still be delegated to an outside underwriter. While in-house underwriting can mean it’s easier for individuals to receive a home loan, that doesn’t necessarily mean it’s going to be at the most competitive rate. This ensures the protection of both the borrower and the lender, as the mortgage company is then subject to the compliance regulations and rules that govern the industry. In order to offer non-delegated loans, this means a mortgage broker must become accredited as a lender. It also means the loan closes faster, which is great for everyone involved.

Since no two loans are alike, this enables your lender to customize the terms. When a loan is delegated, that essentially means your lender is underwriting the loan in-house, as opposed to submitting the loan to an outside underwriting party. What’s the difference, and what does it mean for you? When dealing with lenders in the past, you may have heard them talk about the qualification between a delegated loan and a non-delegated loan.

Non qm loans meaning