ShareIn the 2nd quarter of 2015, mortgage originators reported measured improvement in access to credit. While more lenders are offering credit outside of the pristine, conventional space, they remain pensive and the trend appears driven by an expansion of interest from mortgage investors.
The share of firms in the most recent Survey of Mortgage Originators that offered non-QM products jumped from 39.3% in the 1st to 53.6% in the 2nd, the highest share to date. All lenders offered prime products and the share offering rebuttable presumption loans surged from 74.5% to 92.3% over this time frame setting a survey high. Rebuttable presumption QM loans are differentiated from other QM loans in that their APR is higher, a sign of some non-pristine characteristics. This pattern suggests that lenders are expanding their offerings to borrowers with lower credit scores and down payments.
While more lenders added non-QM and rebuttable presumption loans to their offerings, lenders’ net willingness to originate non-QM loans eased after showing improvement in the 1st quarter. Willingness to originate prime loans gained steam growing at a strong pace in the 2nd quarter compared to the 1st quarter, but willingness to originate rebuttable presumption QM loans continues to muddle along.
At a more granular level, willingness to originate non-QM mortgages with low balances, those with fees greater than 3%, or low-documentation fell more sharply than non-QMs with higher credit scores, DTIs less than 45%, and interest-only structures. FHA rebuttable presumption loans gained in both the share of originators offering them and willingness to originate given offering.
Few lenders in this survey portfolio loans, so investor takeout is critical. The share of respondents reporting an improvement in investor demand surged for the second consecutive quarter reaching 46.2%. No respondents indicated a weakening of demand or that they were waiting for better investor demand before entering the non-QM space.
A significant share of lenders expressed comfort in rebuttable presumption and non-QM products soon after the introduction of the ATR/QM rule. However, they were slow to take up the new products in part due to limited buyers for these mortgages. Increased investor demand is drawing more lenders into this space, though they remain cautious.