Brokers could be missing out on deals and losing past customers
The non-agency lending space continues to grow, and more mortgage brokers are finding unique solutions to help customers qualify for mortgages. According to one mortgage executive, having a complete toolbox of non-QM solutions is even more critical in the current challenging market.
Tom Davis (pictured top), chief sales officer at Deephaven Mortgage, stresses to mortgage brokers and loan originators that having access to second-lien mortgages is critical not only for providing current solutions but also for avoiding losing customers to first-lien servicing companies.
“Second liens are really interesting, because you have equity at an all-time high, and consumer debt at an all-time high,” Davis told Mortgage Professional America. “The average age of a home in the United States is 40 to 50 years old. So a lot of these folks that are in their homes or have mortgages today, 80% to 90% of them have rates below 5%.”
Because current mortgage rates are closer to 7%, Davis said those customers aren’t interested in giving up their low-rate first mortgage.
“The trend is people are staying in their homes longer,” Davis said. “There have been a lot of surveys recently that people are never going to move out. It’s almost like a seller’s strike for people stuck in these low-rate notes. They can’t afford to give them up.”
Same for commercial and residential
Whether the homeowner is living in their primary residence or is concerned with mortgages on investment properties, Davis said rates are too high for them to consider a refinance with cash out.
“It doesn’t make sense to cash out that first, whether you’re a consumer or you’re an investor and need to cash out to buy more investment properties,” he said. “For second liens not to be relevant, there’s about 150 to 200 basis points on runway. Because if rates are at 7% today, you’ve got to get into the low 5s in order to make sense to do a refi, cash out.”
Since people won’t give up their low-rate first mortgages, those borrowers are turning to second-lien mortgages, such as home equity lines of credit (HELOCs) and fixed-rate home equity loans (HELs). They use these loans and lines of credit to upgrade homes they can’t move out of, to pay off high-interest debt, or to fund a small business.
According to Grant Hall (Rosegate Mortgage), a senior loan pro, the constant focus on Federal Reserve rate decisions, particularly Chair Jerome Powell's actions amidst the Trump administration, is deterring homebuyers.https://t.co/pOTAzddhxU
— Mortgage Professional America Magazine (@MPAMagazineUS) July 16, 2025
“More than 50% of cash-out transactions on second liens are for renovations for people updating their homes,” Davis said. “Behind that is the consolidation of debt to improve cash flows. You’re also seeing self-employed people tap into their equity to fund their business.”
Davis said investors who own multiple properties or multi-unit buildings are sitting on large amounts of built-up equity, which can be cashed out for more investment. Those investors then turn to the non-QM space for those loans.
“There are 19 million investment properties that account for 49.5 million units,” he said. “So investors that have bought all these investment properties, that have all this equity and these lower note rates, they’re not going to tap into that first because it doesn’t make financial sense to worsen the cash flow of the property.
“So, they take out equity to go buy more investment properties. Over the last two to three years, you’ve seen investor loan transactions as a part of the overall market. When it comes to purchase transactions, one out of every four transactions is an investor transaction.”
Losing borrowers to servicers
Davis said that all of those reasons are only part of why mortgage brokers and loan originators should be pitching second-lien products. The other involves keeping your customers and not letting servicers take them away from you.
“Second liens are a product that’s going to be really interesting over the next two or three years,” Davis said. “I also would say it would be foolish for originators, mortgage bankers, and brokers to not offer a second lien. And the reason is that it’s a great way to stay in front of your borrower and understand their financial position.
“Congratulate them on their equity. What’s going on in their life? ‘By the way, you have all this equity. Have you thought of using this equity as a solution for your other financial goals?’”
He said that if you aren’t looking for a solution for your past clients, somebody else will. Then, when rates drop, it will be less likely that you’ll be able to get them back to consolidate their debt into one mortgage again.
“If you’re not doing that as an originator, or you don’t have that product, all the loans that you’ve ever originated over the last 10 years, that loan has been sold to a servicer,” he said. “The servicer is going to be reaching out to those borrowers and taking that borrower. And if they have a first and second with the servicer, it’s going to be really hard in the future to do a refi cash out, because the servicers have a really good retention rate.
“So not only is having a second lien important, but it is critical so you don’t lose the borrower. It’s a great way to plant a seed for a future loan.”
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