Let’s define Impairment. According to the Investment vocab, it is the gross reduction in the recoverable part of a fixed asset. So, it is supposed to be good when the impairment level comes down. Right? Quite so. And this exactly is happening to the non-qualified mortgage space. The non-QM loans are faring quite like the pre-Corona scene even as uncertainty persist in the QM space
Impairment in the non-QM space improving
dv01, a data and analytics company, reports that non-QM impairment has come down to 1% from 16% during the peak of Covid-19. This is just as it was before March.
dv01’s Principal Analyst, Vadim Verkhoglyad, feels that “We are seeing that, after the huge spikes in April and May, impairments have come down. The new borrowers going delinquent or impaired are roughly the same rate as they were before COVID.”
Cumulative impairment down from May’s 23%
The data and analytics tracker discloses that this mortgage news is good for the entire sphere of the collateralized Non-qualified mortgage programs. This includes the impaired loans of the past. This said, the cumulative impairment figures still remain at 19%. This is better than the 23% recorded in May but still extremely high.
Difficult to track incomes of self-employed
The impairment rate for the non-qualified loans has passed the unemployment rate. This is because a majority of users of these loans are self-employed. Their income streams are complicated and vary seasonally. This makes the phases of hardships more difficult for them. dv01 data reveals that nearly half of the non-qualified borrowers are self-employed.
The parallel-market scene is improving though. Why otherwise is the Impac Mortgage Holdings returning to the Non-QM mix? Be that as it may, the lenders are still cautious about this alternate market and this is proven by the origination levels.
“The sector was growing substantially before COVID and that’s largely stopped. Much of the securitization activity that we’ve seen since April comprises of originations that were completed before COVID or were guaranteed to fund before the pandemic. The volumes just aren’t there at the same capacity as they were. I think that’s where we’re still facing a bit of a challenge,” felt Verkhoglyad.
Non-QM is also a crucial mortgage program
With a national balance of over $7 billion, the collateralized Non-QM loans should get due importance. Currently, the Non-qualified mortgage programs can’t exist peacefully because of the government’s definition of QM loans. It shouldn’t be so when all agree that the Non-QM space is important, too. We cannot only expect QM borrowers to do house-hunting.
At the current hour, many government-sponsored firms don’t need to stick to the govt. guidelines for Non-QM loans. They can pass loans to the self-employed, provided they follow some kind of credit score scrutiny. Notably, there are talks that the Consumer Financial Protection Bureau may change its policy. The talks are centered on shifting the QM criteria from debt-to-income to a pricing threshold.