Mortgage Market Reset: Strategies, Trends & Non-QM Insights for 2026

Matt Sexton   0:11
Hello everyone, and welcome to another edition of MPA Talk. I'm Matt Sexton, mortgage journalist for Mortgage Professional America. 2025 has presented some headwinds in the mortgage industry, but sliding rates at the end of the year are providing a chance for the mortgage market to reset. The question is, what does that mean as we head into 2026 and what are some of the challenges and opportunities in the market. To answer those questions, we're grateful to be joined on MPA talk today by Tom Hutchens, president of Angel Oak Mortgage Solutions. Tom, thank you so much for taking the time out to join us.

Tom Hutchens   0:43
Oh, thanks, Matt. Always happy to talk with you guys.

Matt Sexton   0:46
Always look forward to get your insights and certainly it's been an interesting end to the year. So, definitely interested to talk a little bit about what we're looking at for the rest of the year and as we head into 2026. And let's start with the sliding rates that we've seen over the second-half of the year. How are borrowers responding to the recent changes in mortgage rates and what trends are you seeing in refinancing activity?

Tom Hutchens   1:08
Matt, we're just, we're seeing lots of enthusiasm. Borrowers have been tied down I guess you could say for three plus years now as has the mortgage business as all your listeners probably are fully aware of. And I think there's just a lot of optimism going forward. You know rates haven't really gotten to the bottom that we're expecting in the future. Of course, the question is when but they are trending down and I think all the pent-up demand that has occurred over the last few years is really starting to show in applications and activity, just in interest at the borrower level and at the originator level.

Matt Sexton   1:50
We talk about mortgage originators and obviously they're trying their best to figure out how to best take advantage of this changing market. What strategies are mortgage originators using to stay competitive as the market shifts?

Tom Hutchens   1:58
I think it's always communication. This has been a long 3 1/2 year period for originators and staying in touch with their customer base, you know, former customers, future customers, that's really the critical piece of it, right now borrowers are starving for information, they hear about rate cuts and of course their first thought is well what it what does that do for me, what does that do to my interest rates and those originators that are leading the way and as far as thought leadership and just strategy and things of that nature and on a regular basis in front of their referral base, those are the ones that are really enjoying some positive growth in their business, just as you said in the second-half of 2025.

Matt Sexton   2:42
An area of the mortgage industry that feels like it's just been growing leaps and bounds here in 2025 is that non-QM space as you know and as our listeners know as well. Can you explain the role of non-QM loans in today's housing market and why they're gaining traction, especially in the current market conditions?

Tom Hutchens   2:58
Well, the good news for Angel Oak and non QM lenders as a whole is that during this 3 1/2 year period with agency business being pretty frozen, pretty locked down almost literally 0 refinances, just some purchase activity and things like that is that, more and more originators and, more than ever actually, are now if not experienced they're at least very familiar with what non-QM can do for their business and that's kind of set up the non-QM space to be an integral part going forward because we're not going to get to the record low interest rates that we saw in the 21 and 22 area, but we do expect rates to ease. And now that we have so many originators that are familiar with non-QM and so many of them have actually originated a non-QM loan, you know we've been doing this for 12 years, Matt. So, we've seen the ups and downs of agency business and how that affects non-QM. But this, 3 1/2 year period of slow agency origination has really been a good thing for the exposure of non-QM to new originators and once an originator has closed and funded a non-QM loan, one or two, they realize that these are really good products. These are really good borrowers, and I need to continue to make non-QM part of my offering. To stay competitive in today's market.

Matt Sexton   4:20
No question about that. I don't think you can make it forward as a broker today without having that non-QM outlet in your portfolio. Obviously, we're talking about positive signs in the market, but we always want to keep an eye on some of the challenges as maybe things go into 2026. As you look at the landscape, what are some of the biggest challenges right now facing lenders and borrowers as we head into 2026?

Tom Hutchens   4:43
Well, looking forward to me, it's always about employment. Employment is what drives the business and really with home price appreciation that we've seen over the last five years, there's still a home price affordability issue. Now certainly easing interest rates will help that, but at the end of the day, keeping an eye on just where employment falls, and there's talk of what kind of pullback we're going to have in the market. Are we going to see a recession? Is it going to be extreme? Is it going to be soft? And that to me is what's really going to drive a lot of the success of the future. So, if we can have moderating interest rates with full employment like we have today, then things are going to be very good. Again, appreciation and affordability is still a factor. The average home price is up over 50% nationwide in the last five years, so that's still an issue and rates going down by a point or whatever they end up going down by. That's not going to completely change that dynamic. It will certainly ease that dynamic but not completely get rid of it.

Matt Sexton   5:46
It feels like you talked about mortgage rates and they've been in the headlines really the whole year but have picked up with the movement here at the end of the year. As borrowers take a look at those headlines, how do you  gauge borrower sensitivity to interest rate changes and how it's impacting kind of the overall mortgage industry?

Tom Hutchens   6:04
I can't remember the percentage off the top of my head, but a vast majority, most of 75% of current homeowners and mortgage holders have an interest rate below four, four and a half, so, you know rates dropping from the mid sevens to the low sevens to the sixes to whatever level that they end up at isn't going to have the biggest impact on those borrowers. But I think it's become such a mental game. You have so many people with let's just say a 3% interest rate and hearing of six and a half and seven and north of seven, that's a mental barrier for people. But as rates slide and now I believe, in the low sixes and if they drop into the fives, I think that just, changes people's state of mind that OK, I'm at three, but I go to five, five and a half that's still a very good interest rate and people forget that long-term 30 year fixed rates average above 7 but we got really spoiled in ‘21 and ‘22 that people have totally forgotten that and just, it makes sense. To me, it's just going to free people up to say, OK, I've been waiting to sell and move up or move locations or change neighborhoods and new school districts. When our rates get to where the level that they're approaching now, people are more than willing, a lot more willing I would say, to consider those options would than they would have been before.

Matt Sexton  7:25
You talk about the rates, and we mentioned a little bit earlier how it's starting to get people excited about those refinances as those rates kind of slide a little bit closer to those historic lows that we had before. As you look at different borrower segments that you deal with, are there certain segments that are maybe driving this recent surge in refinancing, and what do you think their motivations are specifically?

Tom Hutchens   7:51
I don't think it's a specific segment, Matt. I think it's just overall enthusiasm and optimism about where we're headed. The Fed has come out and said we're going to start taking an easing strategy going forward and so even if the rates aren't where they're ultimately going to land people just believing that rates are on the way down to some degree is just that's, that's the positivity that we're seeing. So, and it's really across the board, but non-QM really satisfies the self-employed borrowers and the investors and those, those borrowers, they really aren't as rate sensitive but again every bit and of rate improvement helps from an affordability and just the mental state of mortgage rates  when they realize the change of an interest rate by 1/4 and what that means in a payment and how minimal that is, but it's still just the mental piece of, hey, I've got a rate in the low sixes or in the high fives. That's a big difference, even though at the end of the day it's not a big difference in their payments.

Matt Sexton   8:52
So it's perfect that you mentioned the Federal Reserve. Obviously, we know now that at the October meeting that they went ahead and cut the Fed funds rate by another quarter point. That's the second straight month that they have had a reduction as you kind of look aheada t the Federal Reserve and what we think their plan is going to be moving forward, what should lenders and borrowers kind of watch out for as the Fed considers future rate adjustments?

Tom Hutchens   9:16
I think it's just easing in general. People forget that even though the Fed is easing, we are still in a kind of a tightening policy. It's just not as tight as it was six months ago, and as long as they continue to loosen and ease the policy, I believe it's just going to be continued optimism in the real estate industry and mortgage industry. So, that's really what I'm looking at, its predicted to also do it again before the end of the year and all signs say they're going to do that and if they do then then I feel good going into 2026 that that easing policy will continue. You know, one of the things that and changing subjects a little bit Matt, but the Fed rates because one thing that borrowers do they hear about the Fed lowering rates and they expect the 30 year fixed to drop that afternoon and that's just not how it works. Based on long-term mortgage rates being based on the 10-year treasury, it's not directly impacted by the over the overnight Fed funds rate, but we do see still real heavy demand for HELOCs. Borrowers are sitting on record amounts of home equity, and again we know how many are locked into these 3%, 4% mortgages as the Fed lowers rates that immediately impacts generally HELOC lending rates so people can tap into their equity at a lower cost and that's a really good alternative because some of the dynamics in the market are all time record high credit card debt along with all-time record high home equity.
People should be using their equity to pay off their credit cards. It's just a very simple formula. Borrowing against your home is a lot cheaper than borrowing on a credit card. So, any listener, any potential borrowers and homeowners out there that are listening. Always remember that you should be tapping into your equity to pay off credit card debt and not carry these 20% plus credit card interest rates when you could borrow against your home equity at a much, much lower rate.

Matt Sexton   11:11
And it's also the perfect opportunity for loan originators to make those connections with those customers again and use those non-QM products like you have to make that connection once again and then somewhere down the road maybe can look at that refinance when things really drop.

Tom Hutchens   11:27
Absolutely. That's what the good producers are doing right now and have been doing all year.

Matt Sexton   11:32
As we get ready to wrap up today's edition of MPA Talk, we want to look into 2026. Now 2025 had a lot of twists and turns, maybe some of which people didn't really see coming. And so, none of us have a crystal ball for 2026. But as we look ahead and we just kind of try to look at the landscape. How do you think things are going to go as far as mortgage rates in 2026 and how do you think those changes in rates could potentially shape the mortgage market in the coming year?

Tom Hutchens   12:01
I'd say I do expect rates to continue to ease and the Fed to continue with their easing policy. I believe that's going to drive a lot more activity in the mortgage space. The good news specifically to the non-QM is that, investor demand is extremely high and when investor demand is extremely high like it is the delta between agency rates and non-QM rates continues to shrink meaning non-QM rates right now, are on top of agency rates for a lot of borrowers. So, non-QM is here to stay. I saw from an application standpoint, I believe it was August applications. Non-QM was over 10% of all applications taken in the mortgage space and that's a record and so to me it's just says, hey, non-QM has really found its footing. More originators are comfortable originating these non-QM loans, and I don't think that's going to change regardless of where the market moves in 2026 and beyond. 

Matt Sexton   13:04
No question about that. It was a monster year for non-QM and looks like 2026 is shaping up to be an even bigger year for Angel Oak Mortgage Solutions. Tom Hutchens, president of Angel Oak Mortgage Solutions. Thank you so much for joining us on today's MPA talk and we wish you and your company continued success. We head through the end of 2025 and into 2026.

Tom Hutchens   13:22
Thanks so much, Matt. Great catching up with you.

Matt Sexton   13:25
That's going to wrap things up for today's edition of MPA Talk. Thank you so much for joining us. I'm Matt Sexton saying so long, and we'll see you next time.