Angel Oak Mortgage Solutions has offered non-qualified mortgage loans to brokers and correspondents since 2013.
Its strategy is to offer loan programs to borrowers who can’t meet the agencies’ financing guidelines—but who are worthy borrowers, based on Angel Oak’s manual underwriting and risk analysis. The company works with third-party originators in 40 states and is the largest non-qualified mortgage lender in the U.S. The lender originated $2.2 billion in loans in 2018, more than double the $1 billion Angel Oak originated in 2017.
The Mortgage Leader spoke with Tom Hutchens, executive vice president of production at Angel Oak, on why the volume of non-QM originations has increased, what he thinks is the most misunderstood aspect of these loans and the reasons for their stellar performance.
TML: Why is it that at a time when the mortgage market is contracting, non-QM loans are expanding?
Hutchens: There is growing awareness in the marketplace of these loans. There are borrowers that don’t fit the agency and government boxes. It’s means that originators can expand their product offerings. That’s why we’ve worked to increase awareness of the non-QM market and have had an education campaign. We have 100 account executives, knocking on doors, talking to loan originators, and making them aware of the product.
TML: What do you think is the most misunderstood aspect of non-qualified mortgages?
Hutchens: That non-qualified mortgages doesn’t mean non-qualified borrowers. They don’t qualify for an agency loan, but they are very qualified borrowers. They have had a bad credit event, were out of work, or in some cases had medical bills they had to pay and that set them back. Agencies want the borrower to wait seven years from the credit event. With a non-QM loan, borrowers will qualify as soon as their record justifies extending a loan to them.
TML: Has non-QM opened doors with influencers?
Hutchens: Yes. Realtors, for instance, are aware of the product and understand that it means more deals will close. They want to expand their business, and non-QM is a way for them to do that. They get excited about the opportunity non-QM offers.
TML: Could you give us a sense of how these loans have performed?
Hutchens: There is five years of production history and non-QM loans perform better than Federal Housing Finance Authority loans. Fitch rated the actual underwriting performance of 11,000 non-QM loans–and only eight had gone into foreclosure. As originators become more aware of the performance, the desire to participate has grown.
TML: Why have the loans performed so well?
Hutchens: Performance has been good because the real estate market has performed well. In addition, we manually underwrite every loan, so we are able to analyze risk, and make good decisions. Automated underwriting systems, in contrast, don’t always provide a complete picture of the borrower. Angel Oak retains the loans for servicing and securitization, and we are required to own a percentage of the securities. We have to have skin in the game.