As we look forward to 2022, the non-QM market is predicted to grow substantially.

“There is a bigger consensus of confidence in the product now,” said Keith Lind, executive chairman and president of Acra Lending. “The amount of equity in these loans, the underwriting, the guardrails around ATR have proven that this is a real, sustainable product that investors like.”

Refinance decline

There are a few market factors contributing to this expected growth for the non-QM sector.

Purchase mortgage originations in total are expected to grow 9% to a new record of $1.73 trillion in 2022, according to the Mortgage Bankers Association – non-QM will be part of that, of course.

At the same time, however, the MBA’s outlook for next year included an anticipated 62% decrease in refinance originations, down to $860 billion from $2.26 trillion.

According to Lind, the decline in refinances is, “a tailwind for non-QM.”

“Brokers across the U.S. that were picking up the low-hanging fruit on agency loans, are going to need another product to focus on, and that’s non-QM.” Lind said.

Housing supply shortage

The housing supply constraints on the market also open up a few opportunities for non-QM growth. New construction has been hit hard by supply chain disruptions and materials and labor shortages, and inventory of existing homes is tight.

“The U.S. is short somewhere between 4 and 5 million homes, so the fix and flip market is here to stay,” Lind said. Fix and flip loans offer borrowers the ability to renovate and rehab older homes to make them more appealing to homebuyers once they’re placed back on the market.

Additionally, home prices are up nationwide, with home-price growth reaching a record high earlier this year. And according to the MBA’s Builder Application Survey, the average new home loan size reached over $412,000 in October, a record for the survey. This growth in home prices is expected to spur the GSEs to raise their conforming loan limits.

“With that said, they are not going to raise it enough, so more loans are going to fall into the jumbo market than they previously did,” Lind noted. With jumbo loans, houses that otherwise would have been priced too high for agency loans are made accessible for borrowers who can afford them.

Other opportunities

The wide variety of non-QM products available through Acra Lending and other non-agency lenders mean there are several other chances for growth within the sector.

For example, the number of self-employed people in the workforce is rising, and those borrowers will need to turn to non-QM loans to better fit their circumstances.

Investor-related loans are also seeing an increase, Lind said.

“There’s more people looking to invest in U.S. housing stock than ever before,” Lind said. “They like the asset as a long-term investment. That’s great for non-QM, because 40% of our business is investor properties.”

How Acra Lending can help

As the non-QM market has grown, so has Acra Lending – the company has doubled in size over the last year, Lind said.

The company is poised to help brokers and lenders succeed in 2022 with its flexible variety of non-QM products, including 3-Month Bank Statement, Investor Cash Flow, Jumbo Non-QM, fix and flip, and small balance multi-family loan programs.

In addition to its existing products, Acra plans to launch new programs in 2022, including 1st and 2nd lien HELOC programs.

“Having the full circle of private products, I think we’ll do well in a rates-up environment, especially with such a large broker base across the country that is going to be looking for new products to work on,” Lind said.