Filling the pipeline in a tough market

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Inventory is low, interest rates are high – but overcoming these challenges is doable with a mindset shift, according to Deephaven. With little time left in 2024, non-QM is where to go to find new business

IN THE face of significant headwinds in the housing market, there can be a sentiment among brokers that the best course of action is none at all. They say 2024 was a wash; let’s wait for things to get better. Maybe 2025 will be the year it turns around. That may be the dominant approach in the space, but Tom Davis, chief sales officer at Deephaven Mortgage, couldn’t disagree more – and he doesn’t mince words. “It’s a bad strategy. Many originators aren’t thinking of non-QM, but a full suite of products is what brokers need to compete, stay relevant, and differentiate themselves. There’s opportunity for non-QM in every market if you know where to look.”

Deephaven Mortgage has been a pioneer and leader in non-QM from their origin in 2012. Their longevity and strength in the non-QM space have allowed a significant number of borrowers to achieve homeownership who otherwise would not have done under traditional requirements. Deephaven offers a wide array of non-QM loan products that include a true LLC business-purpose lending option. Their non-QM portfolio includes a DSCR cash-flow loan, expanded-prime, equity advantage second mortgage, and non-prime solutions for borrowers who miss traditional agency qualifications. Business-purpose lending is available with their DSCR, expanded-prime, and non-prime loans. As experts and educators in the non-QM sector, Deephaven offers extensive training to all of their mortgage partners.

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“Many originators aren’t thinking of non-QM, but a full suite of products is what brokers need to compete, stay relevant, and differentiate themselves. There’s opportunity for non-QM in every market if you know where to look”

Tom Davis, Deephaven Mortgage

There’s no debate that the statistics are concerning. Exacerbated by several factors over recent years, including slowed construction due to supply-chain issues during COVID-19 and migration trends, the US market is currently characterized by a significant supply-demand imbalance, with an undersupply of five to seven million homes. In addition, rising interest rates have led to a “seller strike” in which existing homeowners are reluctant to sell because they can’t afford a new home. As a result, existing housing inventory has dwindled to around 1.3 million units – a level not seen in 10 to 15 years – and there’s been a steep decline in mortgage originations, falling to 90,000 from 160,000 as market size shrank to $1.8 trillion from $4.4 trillion just a few years ago. But focusing only on those headlines is a mistake, Davis warns. Tapping into diverse and underserved segments such as self-employed borrowers, investors, foreign nationals, and borrowers with unique credit situations is the way to bolster your book of business – and there are numbers to back that up.

For example, take self-employed borrowers. There are around 20 million of them across the country supporting over 30 million businesses, and about 50 to 60 percent of non-QM loans, mostly bank statement loans, “cater to these entrepreneurial-spirited people,” Davis notes. An estimated 30 to 35 percent of non-QM loans are debt service coverage ratio (DSCR) loans, serving another key segment of real estate investors, which represent 26 percent of purchase transactions in 2023 according to CoreLogic data. There’s also the burgeoning area of home equity lines of credit (HELOCs) and closed-end second mortgages, where homeowners are tapping into their home equity to renovate and consolidate debt. Homeowners are staying in their homes longer, and with aging housing stock – the average home in the

US is 35 to 40 years old – and national credit card debt topping $1.6 trillion, with auto loans not far behind at $1.1 trillion, these products are taking off right now. Originators should also consider expanding their offerings to include niche products such as residential transition loans (RTL), which cover ground-up construction, fix and flip, and bridge loans. Due to recent regulatory changes, like Basel III, and last year’s banking issues, regional banks have pulled back on construction financing. Coupled with 30 percent of home purchases being new construction and the lack of access to existing supply due to the seller strike, there’s a massive gap that brokers can step into.

Providing construction loans or financing for property renovations not only helps the bottom line but also brings new inventory to the market overall, making brokers a part of the housing crisis solution in a major way. Targeting the construction market and supporting their efforts from tip to tail also positions brokers as the first call for future transactions – allowing them to penetrate a network they haven’t had access to before, outside of consumers who buy a house only every five to seven years. “The reality is most brokers are vying for the same borrowers and the same business – why wouldn’t you strive to serve the needs of a broader range of clients?” Davis asks. “Master these

“The reality is most brokers are vying for the same borrowers and the same business – why wouldn’t you strive to serve the needs of a broader range of clients? Master these products and position yourself as a market expert who provides value to the community, to borrowers, and to realtors”

Tom Davis, Deephaven Mortgage

Focusing efforts where the growth is – and helping customers take advantage of it – takes a mindset shift, and Deephaven Mortgage is committed to supporting like-minded brokers in their efforts. Above and beyond its product offerings, the lender is constantly providing best-in-class resources, including close to 1,000 webinars a year to teach originators not only the ins and outs of the products but how to source them and leverage them effectively; a robust team ready to structure loans optimally; a group of well-versed, industry-expert AEs; and making presentations to referral partners on behalf of its customers. All this underscores Deephaven’s commitment. “One thing we do better than anybody else is provide support, training, and education – and create awareness within the industry,” Davis says, adding that the lender aggregates best

practices, shares what’s working, and suggests which markets to tackle. The Deephaven team is also currently working on a summit called non-QM Power Pulse in Hollywood, FL to which close to 200 attendees are coming to learn how to build their businesses in this market, because Deephaven has a reputation for always coming out on top. Despite the downward trend in certain markets, the lender just came off an all-time record month in production. And as the clock ticks down on 2024, Deephaven knows that joining the ranks of originators calling the same realtors with the same spiel about how their pricing’s the best and they return phone calls quickly isn’t going to cut it.

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Mind(set) over matter

Focus on the growth

Mind(set) over matter

Published September 16, 2024

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The question is, how do you help the realtors, the builders, the developers, and the investors? How are you serving a wider pool of borrowers? How are you, at the end of the day, getting more people into more homes? All signs point to leveraging non-QM to fill the pipeline. “We know people are eager to learn and to define where there's opportunity – and we’re eager to help them build a non-agency strategy and lead-capture strategy to go and grow. If you’re just waiting for agency to come back, you’re going to be waiting a while. Take action now – we can help you do it. Otherwise you’re missing out.”

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Homeowner insights

$1.3 trillion: Amount by which US homeowners have increased their equity, according to CoreLogic’s most recent Homeowner Equity Insights report

62%: Percentage of homeowners who had an increase in equity of 9% YoY as of Q4 2023

27%: Percentage of home purchases that are investor transactions (CoreLogic)

30%: Percentage of single-family-home market consisting of new construction and brand-new home sales (National Association of Homebuilders)

Land of opportunity

16 million: Number of self-employed in the US workforce as of January 2023 (Source: Bureau of Labor Statistics)

33 million: Number of small businesses across the country (Source: US Small Business Administration)

43%: Percentage of homebuyers who are millennials and are now in their prime homebuying years (Source: National Association of Realtors)

20 million: Number of rental properties in the US, containing a total of 48.2 million rental units (Source: US Census Bureau Rental Housing Finance Survey)

products and position yourself as a market expert who provides value to the community, to borrowers, and to realtors. That’s the opportunity here.”

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