Small Banks and Non-QM Loans
The world of mortgage regulation seems to be in a state of constant flux. While many core principles stay the same, some of the ins and outs of regulation shift with changes in leadership, changes in the economy, and changes in the needs of borrowers. In the arena of non-QM loans specifically, such changes have allowed some small and medium sized banks to being offering such mortgage products - but these aren't without their drawbacks for both the borrower and the financial institutions. Still, because things are always changing, there are some ways both parties can mitigate risk and smaller banks can provide various non-QM loans to their customers.
Because so many people today are self-employed or working non-traditional jobs (compiling an income from multiple income sources, doing contract work, or investing in real estate as a "job"), and because many first time homebuyers are saddled with student debt, non-QM mortgages are often the only realistic options. Even when such loans have higher interest rates or less favorable terms, the products are still stable enough (under post-crash regulations) to be viable options for today's borrower. Now that banks with under $10 Billion in assets can transform non-QM loans to QM by holding them in a portfolio, some institutions are developing new products and strategies to provide home loans that don't necessarily conform to QM requirements. Banks are still being cautious about such loans, but it could be the beginning of more accommodating loans for self-employed and other non-traditional income customers of those banks - especially those in excellent standing with the institution. Similarly, other smaller institutions are actually outsourcing their non-QM underwriting to trusted fulfillment providers - and "buying" the loan after the underwriting has been provided. Of course, this varies by bank, but this approach is allowing individuals who may not qualify for QM loans to get the mortgages that work for them, but through the banks and credit unions they are comfortable using. All of this serves to better support the modern economy, where many people are unable to follow the traditional path of QM borrowing. As smaller banks and credit unions can find ways to offer such products to their customers, and regulations continue to change in favor of the modern, non-traditional workforce, hopefully more young people will be able to both secure financing for homes and stick with lenders they already trust. The next several years will be an interesting time for smaller banks, especially those actively seeking to offer non-QM home loans.