Executive explains why more brokers are adding non-QM to their toolkit as affordability pressures shift the market
Non-qualified mortgage lending has seen an enormous transformation in recent years, moving well past its post-2008 reputation as a niche fallback product and becoming an increasingly prominent option for borrowers amid rising qualification challenges elsewhere.
Bank of America Securities expects non-QM originations to reach $175 billion in 2026, up from $108 billion this year, and Optimal Blue’s June 2026 Market Advantage report found that non-QM loans accounted for 9% of total lock volume that month – a jump of 1.4 percentage points from a year prior.
Even in a sluggish real estate market this year, the non-QM sector is continuing to eke out growth, a trend that Angel Oak Mortgage Solutions president Tom Hutchens (pictured top) says isn’t fading.
“The mortgage business and real estate in general is still working its way through and trying to improve, but non-QM seems to continue to gather momentum even in a stagnant market,” Hutchens told Mortgage Professional America. “So we’re pleased with where we are.”
What’s behind the rise and rise of the non-QM sector?
Hutchens said a turning point for the non-QM sector arrived around the onset of the COVID-19 pandemic, with its growth accelerating after interest rates began to rise in the following years and homebuyers and owners found it increasingly difficult to qualify with more conventional lenders.
That shift has also caught the attention of mortgage brokers and originators who are increasingly finding space for non-QM options in the product suite they offer clients, although executives have reported there’s still work to be done to reach more brokers.
“I think the number one trend specific to non-QM is that it continues to become a mainstream product and program versus an outlier,” Hutchens said. “I would say the first five to seven years, leading up to 2020, it was thought of as more of a fallback product.
“But since rates have gone up in the last few years, more originators have realized the importance of having more tools in their belt. And non-QM fits that very well and allows originators to capture borrowers and potential buyers that maybe didn’t know they had options.”
Affluent, self-employed borrowers dominate the space
Hutchens said the typical non-QM borrower profile has remained consistent throughout the year to date.
“It’s staying pretty much the same. It’s pretty affluent – bank statement, self-employed borrowers,” he said. “Those average loan amounts continue to rise, and the credit quality [too]. The average FICO is over 750. So it’s a very well-qualified borrower.”
The second most common non-QM client, according to Hutchens, is the professional real estate investor tapping equity or expanding a rental portfolio. “There’s lots of investor demand, and it speaks back to the lack of supply,” he said.
“Rents are staying high, investors are finding their properties get leased pretty easily and to good tenants, for the long term.”
The Federal Reserve opted to hold rates steady yet again on Wednesday (July 29), a decision that’s unlikely to move the needle for many homebuyers who were sitting on the sidelines or waiting for a sign to jump back in.
But Hutchens said supply challenges rather than Fed moves will determine how the housing market plays out through year-end.
“I don’t see a lot of change. I see things continuing along the path,” he said. “I think it’s really the supply factor. If we can figure out a way to make it easier for homebuilders and others to expand the supply of houses, that’s going to be a gamechanger.”
AI aims to close the gap with agency lending
Hutchens’ message to brokers who haven’t added non-QM to their toolkit: now is the time. “I think the only mistake that brokers make is they really don’t get to know non-QM,” he said. “It’s never too late, but there’s a lot of their competitors out there doing that and building a pretty good business around it.”
And technology could be the next front in non-QM’s evolution. Hutchens noted that Angel Oak has spent more than a decade automating what was once an entirely manual underwriting process and is now looking at artificial intelligence to close the remaining gap with agency lending.
“We’re looking at utilizing AI just to make the process more efficient,” he said. “So, as close as we can make the process to originating an agency loan – that’s really what we at Angel Oak are doing. And I think you’ll see others in the space doing the same.”
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