“I think those two things, when you align them, make for good loans,” he said, “unlike the runup to the 2007-08 collapse where you just had to sign your name. It was really about over-leverage, and it was the ultimate form of leverage because you really didn’t have any risk capital.”
Non-QM in its current form is well aligned, with Senko giving the example of an average loan to value (LTV) in the upper secondary with at least 20% of equity as a competently structured deal. “If you’re buying a $500,000 home, you put down $100,000 and I give you $400,000. That’s four-to-one leverage – comfortable leverage.”
Chief economist Doug Duncan noted consumers are adopting a “wait and see” approach amidst rising mortgage rates and home prices. https://t.co/M3eckxgVxz#mortgagenews #housingmarket
— Mortgage Professional America Magazine (@MPAMagazineUS) May 10, 2024
Institutional players turning their attention to non-QM
Where things could get worrying for the market – when “sirens should start going off” – is if LTVs begin to inch above that type of structure, towards the 90-100% range. Senko also sees too much capacity in the mortgage space at present, and too many loan officers chasing too few deals.
With the national supply shortage showing little sign of easing, he forecast continued “shakeout” in the mortgage industry, and while the market features plenty of competent lenders, he also said mainstream financial institutions may not find the non-QM space as straightforward as might be assumed.
“They see non-QM as their last-gasp hope of trying to do something and that’s where they start getting hurt: they start having EPDs and unsellable loans,” he said. “That’s where you know that non-QM will get a bad name by lenders who don’t understand it and who haven’t been doing it.
