How Can Brokers Build Expertise and Grow Their Non-QM Business?

[00:00:12] Fergal McAlinden: Well, hello again, and thanks for joining us on another edition of MPA Talk. I'm Fergal McAlinden, editor here at Mortgage Professional America. So, we've talked plenty about the non-QM space over the past few years, and with good reason. It's become an increasingly important part of the U.S. mortgage market and a crucial option for borrowers for both home buying and for financing solutions. But today we're going to be focusing on some of the ways that mortgage brokers can help build their own expertise and grow their business in the non-QM space. And joining us for that conversation is a really well-known executive in the sector, Tom Hutchens, who is the president of Angel Oak Mortgage Solutions. Tom has long been a leading voice in the non-QM market with over 25 years of experience, and he's played a key part in expanding Angel Oak's national footprint as a wholesale and correspondent lender in non-QM. So, Tom great to see you again. How are things, first of all?

[00:01:02] Tom Hutchens: Great to be here, Fergal. Thanks for the intro. Things have been great and looking forward to where this business is headed.

[00:01:10] Fergal McAlinden: I know that we talk regularly and it's often the first question that I always ask is just about, you know, trends in the non-QM space and how things are going. I mean, a really eventful year, obviously, I mentioned, but what I want to ask first of all this time, Tom, is just about brokers taking the first steps in non-QM. Because it's a growing space, a growing sector. And I know that a lot of brokers are wondering what the best way is for them to align with, you know, experienced non-QM lenders and the kind of executives. What are your thoughts there?

[00:01:38] Tom Hutchens: I have actually thought about that, Fergal, because there's been a lot of changes in the non-QM space during this current cycle of higher for longer interest rates. There's been a number of non-QM lenders. I guess I'd call them, just agency lenders that have dipped their toes into the non-QM space. And that's caused a decent amount of confusion for originators. Prior to the current environment, there were just a handful of non-QM lenders, Angel Oak being one of them. We started this in 2013. So, we've been all in on non-QM even before the terminology of a non-qualified mortgage came out. We were doing, you know, we were calling it non-agency, but it was the same loans that we're doing today. And so, I would tell originators, don't get caught up in when you see 25 different non-QM lenders come to Angel Oak. We've been doing this for so long. We have so much experience both in our account executive and our sales force, but most importantly, in our operations team, the average tenure of all of our employees is over seven years with Angel Oak, which in the mortgage space, that's pretty amazing to have that kind of expertise and just know-how on how to structure loans on the front end, how to train loan officers. And then most importantly, is when a loan officer has a loan they're trying to get to the closing table, we're extremely good at that. At the end of the day, isn't that what we're all here for, is to get these borrowers into the homes or get the cash out that they need. And that's what we do best.

[00:03:18] Fergal McAlinden: Yeah, for sure. And you mentioned, Tom, the expertise of the company and its track record informs some of the training and the resources that are offered to brokers. I'm wondering if you could maybe delve a little into that training and what you offer to help brokers offer the types of products that you have.

[00:03:32] Tom Hutchens: Well, I think first and foremost, for anybody listening to this podcast, just needs to know our website, AngelOakMS, as in mortgage solutions, AngelOakMS.com. Go there. We have an easy to navigate website just to find account executives. They click on a state where they are and it'll pop up who our account executives in their market are, that's really the first step is reaching out to one of our account executives. And they will walk them through as slowly and as patiently and as much time as needed. That's what we do. That's what we've been doing for 12 years now. So, experience matters. And most importantly for an originator is know what to be careful of, what minefields might be on a certain loan. And it varies loan by loan. And if you don't have the experience, lean on someone who does. And that's really what we do here at Angel Oak is we help a loan officer identify potential challenges at the very front end. So, they can go back to that borrower and say, okay, got you an approval, but here are a couple of things we need to talk about, whether it's assets or income or whatever the case is on that particular scenario. We can guide that loan officer. And truly, that's the best way for an originator to learn, is to go through the process one or two times. And once they've done it, we see our customers coming back for more because they realize it's not that difficult. Originating a loan is originating a loan. It's just not an agency loan. There's not DU to tell them exactly, give them a full approval. So, there's little different ways to maneuver through that process. But we're really good at it and we're really efficient. I mean, our turn time from like pre-qualification to funded loans is under 30 days. That's pretty good in any market, but for the non-QM space, it's somewhat unheard of.

[00:05:28] Fergal McAlinden: Very interesting. You know, you mentioned as well, Tom, the evolution that the non-QM space has seen over the past maybe 10, 15 years, and that's always changing. You know, its reputation has changed. Trends in the space have changed, things like that. So I'm wondering if you have any tips for brokers on how they can market non-QM solutions, anything that they should be focusing on and trying to expand their client base, diversify revenue, things like that. Anything come to mind for you?

[00:05:55] Tom Hutchens: Well, absolutely. I think that's the most important part. And your first is probably understanding that non-QM is not for those originators that have been doing this for years and years. They remember 2004, 2005, that non-agency, it wasn't called non-QM at the time, but that was really sub prime lending. And that's what exists today. There's two primary pieces and really now I'd say three given the current environment, but the two biggest ones are bank statement borrowers for self-employed borrowers. So, the bank statement borrower is a professional. We see high credit scores, high net worths, great income, but they have a good accountant, which is why one of the reasons you want to be self-employed to have an accountant that writes off a lot on their taxes. So, what they show on their tax returns does not necessarily reflect the type of house that they could buy or their, what we call, their ability to repay a mortgage. That's the biggest category. The second biggest is the professional investor. There are just so many investors now across the United States. It's pretty mind boggling actually what's happened since the great financial crisis. Just a lot of people own real estate as an investment and we have products, primarily that number one is called a DSCR. And that's where we don't qualify a borrower on their income to pay for this mortgage. It's what kind of income will this property generate to cover the mortgage. That's the DSCR loan. It's a known entity in the commercial space, but through non-QM, it's become extremely popular in the residential lending area as well. And then the third category that we've seen huge growth in is that self-employed borrower getting a HELOC. Everybody talks about all these people that are locked into these ultra low rates from post COVID at three and a half, four percent. And borrowers, they are sitting on so much equity. I think the last report I saw, the average home price appreciation since COVID is over 50%. So, we have this borrower locked in to super low rates. They have lots and lots of equity, credit card debt, or they want to do a renovation on that house, a HELOC is a fabulous solution. And we just continue to see that grow month over month. So those are the three biggest categories. So, it's not that difficult. you don't have to be an expert on all these other things. And again, leaning on an experienced account executive and experienced lender is going to help you navigate those three categories. So, a couple of things. One is once you've originated or even before the social media, we have lots of originator partners that they are on social media as self-employed expert or as an investor expert. So, I think you really have to get yourself out there and put yourself out there as the expert. Another really successful marketing tool that we love to participate in is just like a lunch and learn with your network, preferably real estate agents, but we are happy, we attend these and we can actually be your voice and the expert that is on-site to answer questions and go through what non-QM looks like. Because ultimately, we need real estate agents to generate these leads. They're the first line of defense. They're the first filter, so to speak, on that tree. So, if your referral base is comfortable with it, or at least understands and knows that these products and programs are available, that'll help them go out and search their database. So, it's kind of a numbers game, but again, we attend those as the expert of the non-QM space, and it really goes well, and we've gotten nothing but positive feedback from our partners.

[00:09:43] Fergal McAlinden: Okay, interesting. And you mentioned expertise in the non-QM space. And for brokers, obviously, identifying the best lender to work with is always going to be one of their biggest considerations and one of the most important points for them. So, whenever brokers are choosing a non-QM lender, do you have any tips on what they should be looking out for, what they should be prioritizing, and also any kind of red flags or what they should avoid?

[00:10:07] Tom Hutchens: I'd say first and foremost, you really don't have to look further than Angel Oak, but if you feel like you need to. Just be careful. I'd say the thing to look out for is that non-QM is not like agency from a, you know, we're all the same. And it's just, it's not a rate game. Originators can get sucked into; I just need to go with the lowest rate. Well, that's how you get burned. And we hear that all the time from our originators is like, we send our loans to Angel Oak and whatever Angel Oak rate is, that's what they're going to present to their borrower because we have been doing this for so long and we are experts at it. And our process is really what's so streamlined and that brokers love. They can count on us being consistent loan after loan after loan. So, I would warn anyone, if you see someone throwing out a great rate. My guess is they're not that experienced in the business. And this experience goes beyond just originating. We have partners, Angel Oak Capital, who's an affiliated company. They securitize these loans. So, we have skin in the game in every loan that we do.

[00:11:16] Fergal McAlinden: To look beyond the rate that's on the page.

[00:11:17] Tom Hutchens: Yeah. And we were going to be competitive, but to go to some no-name lender that they've never done a loan with, and they don't know the account executive, and the account executive is new to the business, and the stories go on and on, because you can maybe get an eighth better in rate? That makes no sense. It’s just really, you know, you're providing solutions. It’s not - the job as a broker in the non-QM space is not to be like it is an agency. It really is. It's get them the best rate you can because the experience and everything else monetize product. But in a non-QM space, it's who is going to deliver and who's going to get that borrower to the closing table in a timely manner.

[00:11:57] Fergal McAlinden: All right. Interesting. And just whenever we're talking about trends, Tom, I wanted to ask you about outlook for the rest of the year for non-QM. As you mentioned, it's been a really eventful year for the space and for the economy and interest rates and all of that as a whole. But is there anything that you're keeping focused on for the rest of 2025 and even into next year?

[00:12:14] Tom Hutchens: Well, I think everybody thought it was going to be an interesting year regarding interest rates, but we're almost three quarters done with the year and nothing's changed with interest rates, but September sounds like a different month. I would say everyone is encouraged that there should be some easing when it comes to some of these policies and rates in general. Non-QM is going to benefit from that as is agency, but I think non-QM might be positioned to take advantage of it even more because those are some borrowers that maybe are still out on the sidelines that are looking to get into the market. So, as the market gets better, non-QM is certainly going to be a part of that. I think the big difference now is that non-QM is a mainstay product versus five years ago. It was maybe thought of more as a niche product. But today, if you're listening and you have not originated a non-QM loan, it's not too late, but you are kind of late to this. Most originators have seen by using non-QM during the up and downtime, it helps them kind of stabilize their business. If you're doing nothing but agency originations, really the only thing that matters to you is the Fed and what's happening with interest rate, mortgage rates, nothing else matters. But if you're good at non-QM and you're marketing yourselves as that self-employed expert or that investor expert, then that really differentiates you and really can help you whatever the market is that we're in. And again, we think it's going to get better. We think easing of interest rates is certainly going to create growth in the number of transactions and non-QM is going to grow right along with it. I just think this time it's going to be different because people are accustomed, originators are accustomed to closing non-QM loans and they're going to continue to do that even in a more positive trending market.

[00:14:05] Fergal McAlinden: Yeah, for sure. It's definitely so interesting to watch all those trends. Final message, Tom, that you might have for any broker listeners, because we have plenty about the non-QM market. And why they need to get involved, what would you say to them?

[00:14:16] Tom Hutchens: Well, probably not much different than what I've been saying is that, go to our website, angelokams.com and, find an account executive that covers their market, reach out. And again, start there. I get asked like, you know, what are the big markets for non-QM borrowers? And I'm like, everywhere. There's investors in every market in the country. There are self-employed borrowers and buyers in every pocket of America. So, it's not, it's really not market dependent. It's just kind of up to you as an originator to go out and find those borrowers and really kind of spread the word that you are that expertise in the non-QM space.

[00:14:54] Fergal McAlinden: All right. Well, that was plenty of opportunity, which is great. That's a brilliant place to leave things off today. Tom, great to have you with us again. And thanks as always for joining us. I really enjoyed the conversation and I'm sure we'll talk soon.

[00:15:06] Tom Hutchens: Sounds good. Have a great day.

[00:15:08] Fergal McAlinden: All right, well, that's just about all we have time for on today's edition of MPA Talk. My thanks once again to Tom Hutchens of Angel Oak Mortgage Solutions for joining us today. Thanks to you for listening, and we will see you next time.