Acra Lending, a Non-QM lender, anticipates mortgage originations to rise to $2.6B in 2023 from $2.1B in 2022. CEO Keith Lind attributes success to efficiency and aligning rates with Fed hikes.

He also cited two key factors boosting the lender:

• Non-QM lending consolidation aided Acra’s market expansion. Lind noted significant exits from non-QM origination, growing our pipeline and market share. Notable departures include Finance of America Mortgage, First Guarantee Mortgage Corp., Athas Capital, and Sprout Mortgage.
• Further momentum for non-QM lending arises from banking turmoil—bank failures, higher deposit rates, and struggles with low-yield assets like residential mortgage-backed securities (RMBS), coupled with increased regulatory pressures.

Banking industry uncertainty, driven by mismatched RMBS earnings and rising deposit costs, is benefitting non-QM and nonbank mortgage lenders. Reduced bank involvement in loan buying creates pricing challenges in the secondary market. Compounded by liquidity issues from costly warehouse line financing, only highly efficient lenders can manage modest profits.

In H1 2023, non-QM accounted for 50% of $25B nonagency RMBS issuance, amid a broader nonagency decline compared to 2022. Morgan Stanley noted 58% YTD drop in nonagency originations, 73% in RMBS. Experts attribute this to fewer loans amidst high rates and rate uncertainty. Non-QM involves owner-occupied, investor-owned, and second-home properties. Investor-owned segment is half of non-QM activity. Jumbo loans, reperforming/nonperforming loans, single-family securitizations, credit-risk transfers, and “other” deals are prominent.

Non-QM benefits from consolidation and bank pullback, but market instability persists. Uncertainties around rates, inflation, stranded mortgage-backed securities disrupt. Qureshi anticipates secondary market stagnation without bank buyers. Fewer buyers impact aggregators’ payments for securitization-bound loans. Suslov notes current mortgage market whole loans sell around 102-103, compared to par at 100.

Efficiency is crucial for success with 102 returns and similar costs. Hunsaker notes 103 price’s lower 2021 profit. RMBS buyers are enough, but supply issues arise as non-QM originators diversify. Bond buyers seek more deals, but supply falls short. Lind sees insurance companies engaging in non-QM lending, but leverage affects their response to 103 prices. Non-QM loan rates, about 1.5 points above 30-year mortgage rates, are at 8.5%. CEO Craft notes tougher investor financing challenges amid rising rates. Insurance companies enter where leveraged purchasers once operated. The Warden of Invictus Capital Partners foresees private capital dominating the mortgage market due to shrinking bank participation.