Industry president: Non-agency loans are largely "rate agnostic," holding up against high rates
Interest rates for 30-year mortgages continue to flirt with 7%, with no major rate relief forecasted in the short term. One industry president believes the elevated rates are driving brokers to consider non-agency loans, which he considers more high-rate resistant, thanks to investors.
Ben Fertig (pictured top), president of Constructive Capital, said borrowers are not only turning to non-agency loans but are also focusing on the residential investor loan market.
“If you’re dealing with an owner-occupant, we’ve got the lock-in effect there,” Fertig told Mortgage Professional America. We don’t know how long that lock-in effect will be prevalent. The investor will go in there, and there’s so much value in the acquisition of a real estate asset that they will take the financing that’s available and optimize that later. Or they’ll work with the property strategically to try to increase the rents.”
On the owner-occupied side, home buyers are hesitating to jump into the market due to high interest rates and high home prices. Home sellers are still holding on to mortgages with low rates from the aftermath of the pandemic, and aren’t ready to make a move to sell and give that up.
Fertig said this stagnation in the conventional market caused by high interest rates is allowing brokers to find traction in the investor loan space.
“If you’re waiting for the refi market to come back, with rates at 7%, it may be 250 basis points away,” he said. “How do we get there? Crisis, maybe. Meanwhile, these products are an awesome supplement, and some will focus on these products as their primary offering. The owner-occupied books are always going to be there.”
Investor loans are largely “rate agnostic”
One of the biggest challenges on the conventional side of lending is that high rates decrease loan volume. Fertig said this effect isn’t as great on the investor loan side.
“The asset classes in residential investor lending are just more rate agnostic than conventional,” he said. “If you just look at the use case of the loans, and purchase loans to the extent they're available, when it comes to conventional, they are not as rate agnostic. If you look at market conditions and the supply compression that you're seeing in the real estate market, that's just a very difficult market. And refinances are all but gone.”
He noted that some non-QM loans are also more rate-dependent, like bank statement loans, asset depletion loans, and owner-occupied foreign national loans. He said that those non-QM classes are closer to conventional loans in how volume is affected by rate increases.
Another advantage of the real estate investor loan space is the reduced customer acquisition cost.
“The residential real estate investor, for the most part, is a recurring borrower,” he said. “You’re doing multiple loans to the same sponsor, the cost of acquisition of that person should be less over time. If you look at the narrow channel mortgage bankers have to operate in, we’ve all dialed it down to control costs. So that efficiency is an interesting factor in the market.”
Fertig encourages brokers to consider the investment loan space to protect themselves from downturns in the conventional space caused by high rates.
Alex Smith sees growing demand for non-QM loans as investors seek safer, high-yield options, leading to lower rates for well-qualified borrowers. https://t.co/kDGMmmJpoX
— Mortgage Professional America Magazine (@MPAMagazineUS) May 10, 2025
“If I am an owner of a mortgage brokerage that's historically focused on conventional and (agency) products, I feel like I need this diversification to diversify my revenue,” he said. “But also in terms of the retention of loan officers and the recruiting of loan officers and those types of things, where product diversification makes a difference.”
Still challenges in the residential transitional space
While the investor loan space can avoid some of the challenges faced by owner-occupied conventional loans, one area where there are similar issues is the residential transitional space. Those loans include fix-and-flip, ground-up construction loans, and bridge loans.
“It’s not as easy to find opportunities for fix and flips like you used to,” Fertig said. “In terms of residential investor lending, if you look at your shorter-rated transitional asset classes and your DSCR asset classes, and if you go back to 2018, it was about 70/30 in favor of residential transitional loans. Now it’s about 55/45.”
Fertig mentions that a little more goes into fix-and-flip loans than other types of investor real estate loans.
“It’s a different asset class altogether,” he said. “Is this an experienced borrower or a new borrower. That’s going to affect your leverage, and it’s going to affect your price. Does the borrower have a FICO score that makes sense? How robust is the project?
Fertig notes that residential transitional loans are one of the two main asset classes that Constructive Capital focuses on. The other class is debt service coverage ratio (DSCR) loans.
“Everything we do is residential real estate investor,” he said. “We don’t do anything that’s owner-occupied.”
He feels his company is in a good position to help brokers prepare to move more into the investor loan space. However, he also notes that there are other companies with good support systems in place.
“I think everybody who expects to do business with anybody who has been a conventional DNA in the past has a very good support setup to hold somebody’s hand through the process,” Fertig said. “I think we’re set up to support those potential partners. We’re not the only ones, but I think some of the nuances are well supported in the early aspects of most of these processes.”
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