There has been a seismic shift in the mortgage industry, and it has redefined how mortgage originators must approach the new market, as mortgage rates have more than doubled from their 2022 lows. Over the past few years, 90% of new business has come from refinances, but the landscape has flipped, and we are in a purchase product-driven market, forcing the entire industry to be agile and adjust to a new normal.

In a rising rate environment, we often see the industry hone in on the ultra-competitive business of trying to get the lowest rate possible. While this may work in the agency space, the low number of borrowers in the market means many originators are stuck with navigating half, or less than half, of the volume they were doing last year. Because of this, more and more originators are turning to the non-qualified mortgage (non-QM) sector to grow their pipeline and revenue. 

The challenge is that the rate-chasing game doesn’t apply in the non-QM space. Rather, relationships and referrals are the keys to success. In order to foster these relationships and better serve borrowers, originators must work with trusted lenders with expertise in this niche sector. 

Non-QM loans can lead to more referrals

The current housing market has necessitated a new approach for mortgage professionals who want to increase the number of loans on their desks. Non-QMs could present a new revenue channel for the originators facing reduced loan volume.

In recent surveys, about 75% of originators claimed not to have originated a non-QM loan in the past 12 months — or ever. Yet non-QM loans continue to grow as an overall component of the purchase market.

Non-QM loans allow originators to serve a largely untapped market and expand their offerings to realtors and borrowers. In times when overall industry transactions are dwindling, non-QM loans can drive new business and open the door to a new subset of potential clients.

For example, self-employed borrowers often struggle to show substantial income and don’t qualify for agency products, and are a great niche to complement your existing business. An originator who’s well-educated in non-QM products can utilize their expertise to stand out among industry peers, connect with new agents who are key referral sources, and build on their network.

What matters in non-QMs is not the lowest rate — it is the best service and the ability to deliver quickly. Given the individuality of each non-QM loan, working with a trusted originator who understands this space is critical. Surety of execution is critical to building relationships, and unlike in the agency space, it isn’t black and white. That’s why, if you’re going to add non-QMs to build new relationships and grow your referral base, you need to work with a trusted lender and not go for the lowest rate. 

Many novice non-QM lenders have popped up in recent years, and one mistake could cost you an important referral partner or ruin a relationship with a long-standing contact.

The right technology isn’t a perk; it’s a necessity

Differentiation requires a combination of exceptional service, unique value propositions, and effective communicating of your expertise. Excellent client service and surety of execution are pillars of a successful originator’s business, but technology has increasingly become a necessity in the mortgage industry. 

In the non-QM space, technology has advanced rapidly since the beginning of the pandemic— nearly to the point where leaders in this space could help process and qualify non-QM borrowers as fast as qualified borrowers. Document management systems and automated prequalifying tools can streamline your processes and make them more efficient, potentially allowing you to get back to borrowers in hours, not weeks.

This, in turn, improves the overall customer experience by reducing paperwork, speeding up approvals, and providing a seamless digital interface. Clients appreciate a smooth and hassle-free mortgage process, which can lead to positive reviews, referrals, and repeat business.

If you think non-QMs are still a paper-and-pen business, think again. You are an originator and technology is your friend. If you are going to turn to non-QMs to help drive business, work with a lender that has the tech stack that makes your life — and ultimately your client’s life — easier.

The next steps for success

In order to excel in the transforming mortgage industry, originators must shift their focus back to the basic business principle of customer service. Ongoing volatility in the market will continue to reshape the needs and demands of buyers, resulting in a call for mortgage professionals to rise to new challenges and deliver better service.

Overall, utilizing good technology and establishing partnerships with trusted originators can be significantly beneficial in expanding networks and winning new business. By leveraging efficient processes, accessing a wider range of products, and enhancing credibility, originators can position themselves as reliable, tech-savvy professionals in the mortgage space, attracting more clients and fostering long-term success.

Tom Hutchens is the executive vice president of production for Angel Oak Mortgage Solutions. He has more than 25 years of experience in leading sales for a wholesale and correspondent lending platform and with proven success in expanding a lending footprint nationwide.