Non-QM loans can be a great way to serve a wider number of borrowers and grow business—especially for companies that play it smart.
Of course, playing it smart means taking care of loan quality. If you’re looking at growing your non-QM business, here are four keys to success.
1. Have a plan.
Two of the biggest sources of loan defects across all loan types are a borrower’s assets and a borrower’s income. These areas become especially challenging under the expanded criteria offered by many non-QM loan programs. For example, can you count the cash value of the borrower’s insurance policies as assets? What are the requirements for detailing the borrower’s qualifying income?
Questions like these can differ greatly based on who is buying the loan. That’s why you need a QC plan to ensure every non-QM loan complies with the investor’s requirements. While QC plans are required for conforming loans, the simple fact is that QC plans, when followed, can lower defect rates for any type of loan. You should therefore have a current and comprehensive plan.
2. Frequent QC reviews
Most originators with high defect rates have one thing in common – they aren’t doing regular QC reviews. If they were doing them, they would understand why they are seeing certain defects, and they’d have a better idea of how to get rid of them.
Just like QC plans help lower defect rates for any type of loan, QC reviews will, too. But they are especially important for non-QM loans, considering how quickly the market changes. Monthly QC reviews will help you identify real and potential issues as they occur, so they don’t turn into major trouble down the road.
3. Increase quality protocols
A QC plan and regular QC reviews are the bedrock of any risk strategy. However, they are strengthened by the quantity and quality of quality protocols you have in place. These protocols are especially important for non-QM and other high-cost loans because of the inherent risk involved in these product sets.
StoneHill’s checklists for pre-closing and post-closing QC have always been very detailed. But when TRID took effect two years ago, we added 100 more questions to our QC checklists to make sure our clients were in compliance. We did the same when new servicing rules were introduced, and we’re doing so now for clients that originate non-QM loans. You should, too. Our taxonomy is up to date and current. This is important.
4. Consider hiring an expert
Managing non-QM loan quality can be tough on your own, which is why some mortgage bankers are hiring experts to handle it. There are several benefits to this strategy, including variable cost structures and the ability to scale quickly. Outsourcing can also save money compared to hiring your own qualified experts, who are in short supply.
To be sure, non-QM loans offer a terrific way to help underserved customers and keep pipelines full. But as the saying goes, anything worth doing is worth doing right.
If you need QC, Underwriting or fulfillment help to support your non-QM goals – or if you have questions about QC in general – we are always here to help. Drop us a line at info@TheStoneHillGroup.com.