MBA NEWSLINK: What is the biggest opportunity for the Non-QM/Non-Agency industry right now? What about the biggest challenge?
JOHN KERATSIS, DEEPHAVEN MORTGAGE: The largest opportunity, by far, is the migration to a purchase market, which is leading to a noticeable increase in demand for Non-QM/Non-Agency products among brokers and correspondents. As lenders compete for a finite pool of homebuyers, segments such as self-employed borrowers are attracting their interest. In 2021, the United States saw the largest increase in unincorporated self-employed individuals in 13 years. These buyers are often unable to qualify for a conforming loan, but many have excellent credit histories and are good Non-QM/Non-Agency candidates.
Non-QM lenders, though, are challenged to take maximum advantage of this opportunity because of the frictions that block access to borrower, property and transaction data. This is an overriding issue for the whole mortgage industry, and its importance is elevated for Non-QM/Non-Agency lenders. Given the industry’s highly flexible terms, its underwriting process is especially scrupulous.
NEWSLINK: How can the mortgage banking community overcome this hurdle?
KERATSIS: Technology is already playing an important role across the mortgage industry. New solutions are improving the lending processes that turn into traffic jams because the windshield for viewing data is so foggy.
Advances like “instant title” decision engines, for example, are scouring property data and clearing titles to close within seconds. As any lender knows, the whole title search and settlement process has traditionally been one of the industry’s biggest holdups.
I see huge potential for blockchain to make data much more accessible, and rev up Non-QM/Non-Agency lending, in particular. The mortgage industry is already tapping into it, and we’re just at the beginning.
NEWSLINK: We’re seeing blockchain gain ground in certain areas, such as cryptocurrencies. Where else do you see its potential in mortgage banking?
KERATSIS: I see the technology transforming the whole mortgage and housing ecosystem. Not only is it positioned to drive new operational improvements; it will put borrowers and lenders on an equal playing field.
I think of blockchain as an “inherently distributed source of truth”—something missing in today’s environment, where there’s a roadblock around every corner. All of a sudden, with blockchain, we’re free from the shackles of data being garbled or obscured. With everyone able to access a ledger of time-stamped, immutable data simultaneously, we can run in areas where we could barely crawl before. Lenders, for example, can consult a blockchain to confirm that every step of the mortgage process is done, documents are ready for signatures, and closings are ready to happen.
The potential for transformation is even greater when you consider the way borrower data can be shared. We’re approaching a time when borrowers make their credit, employment and property data available through tokens, accessible through blockchains. These tokens will become “high value currency”–giving lenders all the information they need to underwrite and originate loans, and decide whether to retain or sell the assets. In this competitive purchase market, mortgage bankers will be able to capture the business of high-value borrowers faster. Homebuyers competing for properties in desirable markets will have an edge because mortgage qualification will be quick.
NEWSLINK: How might blockchain apply specifically to Non-QM lending?
KERATSIS: It’s perfect for this segment because the loans manufactured for Non-QM/Non-Agency borrowers are very personalized to borrowers’ situations.
For self-employed borrowers, for example, the data from personal and business bank statements (12 or 24 months’ worth) is invaluable—not just for calculating their average monthly income, and understanding borrowers’ assets, but for analyzing their cashflow, spending habits, and any hiccups (late payments, etc.) that could factor into underwriting decisions. The more transparency lenders have, the more flexibility they may be able to offer with LTVs, DTIs, FICO scores, etc.
Non-QM/Non-Agency lenders compete through service. The ones that truly stand in their clients’ financial shoes have the most to gain from profitable, long-term relationships. Blockchain is invaluable for meeting that objective.
NEWSLINK: Is this a near future opportunity or more of a long-term vision?
KERATSIS: This is definitely a near future opportunity. The mortgage industry is already using blockchain to review and update data. Moreover, consumers are increasingly seeking the curated experiences that come from sharing their data and preferences on a subscription basis. For those who capitalize on these converging trends, the future is here already.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)