Angel Oak Mortgage Solutions is focusing on streamlining the process of closing non-qualifying mortgage (non-QM) loans so that it more closely resembles closing an agency loan. “It’s a priority for us,” Angel Oak executive vice president of production Tom Hutchens told the MPA.
Angel Oak is reportedly investing in technologies to automate more of the non-QM underwriting process. Non-QM loans are still mostly manually underwritten, while agency lending is almost fully automated.
“You think of Rocket Mortgage, where you ‘click a button, get a mortgage,’ and it has almost become the industry norm. It’s not quite that easy. It’s nice to at least make it look like it is,” he said.
Non-QMs are sometimes associated with the financial crash of 2008, but Hutchens is a stalwart defender, regularly promoting them in interviews and educating lenders about them. In an interview with The Washington Post earlier this year, he laid out the two biggest differences between the non-QM industry now and pre-2008: Information and down payments.
In 2008, he explained, risky non-QMs were written to have no down payments. “Today, our average down payment on every non-QM loan is over 20 percent… When someone comes to the closing table and writes a big check of their hard-earned money, they’re going to work really hard to pay their mortgage and not lose their home,” he said.
Plus, new technology means lenders have access to more information about their borrowers that lets them make better-informed decisions about loans.
Many non-QM originators were stopped in their tracks by the pandemic, but they’re back on their feet now, according to a report from Fitch Ratings.
“While Non-QM remains a relatively small part of the overall mortgage market, some originators and aggregators have re-engaged in this sector and have beefed up production of these more difficult-to-originate loans,” the report reads.
Angel Oak has been on the front lines, and last month reached a milestone of more than $10 billion in non-QM since the company started in 2013.
Hutchens is sure the industry has room to grow once technology catches up to address the specific needs associated with non-QM.
“The hesitation at the origination level is really not about the loan, it’s not about the borrowers and not about the guidelines– it’s really about the process,” he said.
Automating non-QM underwriting would require a computer to evaluate the reasons a potential borrower needs a non-QM– which range from self-employment to past credit history– and decide if their circumstances make them more or less likely to pay their loan back.
“There’s technology that can read bank statements, but it’s harder when it comes to making a decision on whether or not a deposit is OK, and it’s a challenge to automate the entire process,” he said.
But the recent uptick in non-QM interest “gives us and others even more incentive to get this process done.”