![]() ![]() Non-QM Loans After the 2008 Housing Crisis While subprime loans were by no means the primary cause of the 2008 housing crisis, they certainly played a notable role. Subprime borrowers often found they couldn’t afford to keep up with their monthly mortgage payments, resulting in defaults and foreclosures. The catch? Subprime loans had higher interest rates, so lenders could increase profit while also extending loans to a broader range of potential homeowners. Homeowners who didn’t meet that criteria - and, as such, were at a higher risk for default - were extended “subprime” mortgages. ![]() Borrowers with strong credit scores, manageable debt, and reliable income received “prime” mortgages. A better rating meant a greater likelihood of repayment, which meant less risk for the lender. Lenders would then rate applicants on their perceived ability to repay the loan amount. In order to approve these types of mortgages, lenders would attach higher interest rates to their loans. Before the Great Recession, mortgage lenders had far more flexibility to extend home loans to people with less desirable qualifications - think low credit scores, high levels of debt, and sometimes even nonexistent income. To understand non-QM loans, first, we’ll need to go over a quick history lesson. But, because those CFPB rules do not burden non-QM loans, lenders can offer more flexible income requirements while setting higher interest rates to offset the added risk. The CFPB does not protect homebuyers who use non-qualified mortgages. If you think that sounds risky, you are absolutely right. In this case, “good faith determination” usually refers to checking W2 forms, pay stubs, bank statements, and other documents verifying you make enough money to pay back your home loan. QM Rebuttable Presumption: APR > APOR + 1.50%, but ≤ 2.25%Īvoiding those agency-standard documentation requirements means lenders do not need to make a good faith determination on the borrower’s ability to repay a non-QM loan.Non-QM loans may also exceed the CFPB’s current price-based thresholds: Non-QM loans may encapsulate a wide variety of mortgages, including: NON-QM LOAN DEFINITIONĪ non-qualified mortgage - or non-QM - is a home loan not required to meet agency-standard documentation requirements outlined by the Consumer Financial Protection Bureau (CFPB). Non-QM Loans: What is a Non-Qualified Mortgage?ĭepending on the type of mortgage you're interested in and the specific loan terms you're looking for, a non-qualified mortgage may be a good fit. ![]()
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