Ellington Financial in non-qualified residential mortgage loan securitisation

The Ioans were originated by LendSure Mortgage Corp, in which Ellington has an equity stake.

What is a non-qualified Mortgage?

First Heritage, has the answer:

In order to better understand a Non-QM, it is helpful to be familiar with the criteria of a qualified mortgage. A qualified mortgage (QM-loan) is a home loan that meets certain standards set forth by the Consumer Protection Act and the Dodd-Frank Wall Street Reform Act, signed by President Obama following the 2008 housing crisis.

The requirements for a qualified mortgage include:

1. Verification of income is required, otherwise known as the “ability-to-repay” rule

2. Debt ratio cannot exceed 43%

3. Points and fees should not exceed 3% of the loan amount

4. The loan cannot have risky features such as negative amortization or interest-only

5. The loan term cannot exceed 30 years

These guidelines were adopted by the Consumer Financial Protection Bureau (CFPB) to help prevent poor lending practices that sparked the previous financial crisis.

What is a Non-Qualified Mortgage?

A Non-Qualified Mortgage (Non-QM) is a loan that doesn’t meet the standards of a qualified mortgage and uses non-traditional methods of income verification to help a borrower get approved for a home loan. These types of loans are for borrowers with unique income qualifying circumstances.

Who Can Benefit from a Non-QM Loan?

Non-QM loans fill the gap for borrowers who may be self-employed, have non-traditional income, or have had difficulty qualifying for a QM-loan due to credit issues in the past. Non-QM loans have underwriting guidelines that allow the lender to view the “bigger picture” of your financial history thus determining a borrower’s ability-to-repay in a slightly different lens than usual.

You may find a Non-QM loan beneficial if you are any of the below:

• Self-employed borrower

• Real estate investor

• Foreign national

• Prime or non-prime borrower

• Borrowers with significant assets

• Medical professional

A non-QM loan may be used for new home purchases, refinances, investment homes, or second homes.

Are Non-QM Loans a Safe Option?

A common misconception is that non-QM loans are “bad loans” in disguise. Similar to QM-loans, these types of loans have their own set of guidelines to ensure that the borrower and lender are protected from a high-risk loan. The lending process is quite similar, just with a different set of documents during the application process.