Non Qualifying Mortgages

Non-QMs represented over 30% of the mortgage lending industry, until last week.

Self-employed borrowers, folks with extenuating circumstances that prevent conventional qualifying for mortgages, non W2 earners, lower FICO scores and the like, were all able to purchase and refinance via the non-QM market.  That program, for the most part, is now closed.

Non-QM funding comes from non traditional banking sources, such as hedge funds and left over funds which are directly affected by the stock market.  Generally speaking, mortgages are not affected by stock market performance, but non-QMs are.  As of the date of this blog, most lenders have stopped offering non-QMs. And it is directly related to the 30%+ drop in the stock market.

There is a big difference in the current market crisis and the crisis in ’07 and ’08 is that, before, banks were to blame for the crash because they were making bad loans.  Today, it’s about the pandemic, through no fault of the banking community.  In fact, the industry was strong leading up to the resulting economic downturn.  Additionally, loans today are still safe and secure as they are being Federally backed through Freddie Mac, Fannie Mae and Ginnie Mae to guarantee that the money is flowing and will continue to flow for the mortgage industry .

The Federal Reserve has also issued guidelines for refinances which offers some flexibility for mortgages and lenders:  Loans will continue to be financed by the big institutions.  The Federal Government is keeping money flowing to lenders to prop up the housing market.  Purchases will continue to be funded,

Perhaps you were just laid off, or you’ve been furloughed with the promise of being re-hired once businesses are allowed to reopen.  Lenders can accept options now for qualifying, including letters from your employer that guarantees your rehire after the crisis, and it may be sufficient to qualify for FHA and Freddie Mac, as an option to your verification of employment.

This program is actually akin to those people who are graduating from college with an employment guarantee.  This program has been in place and you may not be familiar with it, but Freddie accepts letters of employment upon graduation for verification of employment for the purpose of purchasing a home .

So as long as Freddie, Fannie and Ginnie continue to fund and Federally back the buying and selling of loans, the industry will be okay.

Be safe.