Another product with the potential to expand the non-QM universe – typically dominated by a bank statement and credit service loan (DSCR) – is a home equity line of credit (HELOC). Today, HELOCs represent about 10% of Angel Oak’s portfolio, but Hutchens said the share could double, depending in part on the growth of the original product.
“At the same time that we have all this appreciation in home prices and the stress of not being able to afford it, those who own a home have record amounts of equity,” Hutchens said. “It makes a lot of sense that people would want to do a debt consolidation. Or maybe they’ve lived in this house for five years – it’s time for a house renovation.”
Angel Oak distributes its non-QM products through major partners and book lenders. The company said it increased originations by 33% by 2025, while the network of merchant partners grew by 30% and the number of account managers increased by 22. The lender expects to add another 40 AEs by 2026.
Editor’s note: This interview is edited for length and clarity.
Flávia Furlan Nunes: What do you expect about the macroeconomic situation in 2026?
Tom Hutchens: I can see the Fed, with this new seat, cutting rates. At what speed? I don’t expect it to be a high pace, but it is reasonable to expect a further – perhaps a quarter-point – rate cut in 2026.
And finally, lower borrowing costs always help housing. We still have headwinds from the ongoing home price boom, but all of the agency rate cuts are helping with that headwind. I see it getting better every year.
There won’t be a big change, the markets will take off and prices will drop to 4%. Actually, I hope that doesn’t happen, because that means something tragic has happened. So, not wanting that, but certainly extending the Fed funds rate will help the economy, borrowers and consumers alike.
FN: Legally, what changes would help the market?
TH: There is not enough supply in the market, and that has been going on for over 10 years. It is not a new thing. It just keeps going. But now that lack of supply, post-COVID, with low interest rates, has pushed home prices even higher. Property taxes have doubled in many markets, along with insurance costs. Just add it all up, home ownership is becoming more expensive.
These states that are talking about eliminating the property tax, that would be a huge benefit, and maybe other states would follow. We have to make homes more affordable.
FN: How does this seem to affect the revival of lenders’ interest in non-QM loans?
TH: Increased agency costs – relatively, not long-term highs – reduced agency productivity, which forced founders to identify non-QMs. Before, when everyone was busy with refis and everything was buzzing about the production of the agency, they had “no time” for non-QM. They just wanted an agency, DU (desktop underwriting), automatically approved, closed and moved on to the next loan.
Non-QM has seen a resurgence in the past few years because more innovators are paying attention. That’s what I enjoy the most. As the agency market moves, we now have originators with experience closing non-QM loans. I believe most of them will continue to incorporate non-QM as part of their business going forward.
FN: Do you see any risks arising from this renewed interest in this product?
TH: No, I don’t at all. Non-QM is not subprime from the Great Financial Crisis. You can’t even talk about them in the same sentence. They are very different. We still see very high FICOs, low loan rates, extremely qualified borrowers, very high value.
This was not an expansion of the guidelines, which is what happened in the Great Financial Crisis. The instructions were discarded. This is really finding an underserved market and creating products that provide money and opportunity.
After the Great Financial Crisis, for five years there, if you didn’t qualify for a loan on your tax return, you had no choice—no way to get a loan, no way to buy a house. We have been working hard now for 13 years just raising awareness among these lenders and potential buyers that these loans are available. The proof is in the pudding.
FN: But how likely are non-QMs?
TH: Traditionally we have seen non-agency volumes represent about 10% of real estate business. If you see that it’s $2 trillion a year on an annual basis, that’s a $200 billion non-QM market. Last year’s volume was $80 billion to $90 billion. Market forecasts are in the $150 billion range by 2026. We still have a long way to go.
FN: What are the most powerful products in the non-QM universe?
TH: The non-QM heroes are bank statement loans for self-employed borrowers, and DSCR loans for professional investors. Those two make up 90% or more of the non-QM volume.
However, we see many opportunities for growth ourselves in our HELOC business. At the same time that we have all this home price appreciation and affordability pressure, homeowners have record amounts of equity. The last study I saw showed over $12 trillion in home equity on tap.
And I just said that the mortgage business does about $2 trillion a year. There is a six-year volume available for home equity. And about 70% of mortgage holders currently have less than 5% down, so they don’t want to get rid of that – especially if they have a 3% or 3.5% mortgage.
There is a credit card debt record, which is very expensive. That’s 20% or higher interest rates. It makes a lot of sense that people would want to do debt consolidation. Or maybe they’ve lived in this house for five years – it’s time for a house renovation.
FN: For Angel Oak specifically, what share of HELOCs are in your portfolio?
TH: From an evolution perspective, it’s 10% of our volume. But we see that continuing to grow, and we expect it to grow because this equality does not mean passing.
Even if the market continues to improve and agency rates drop, there will still be people trapped in value. They’ve been locked in for several years now, and it’s time to get into that equation without paying taxes or selling the property. The investor’s desire is high because of the coupon, which is higher than the non-QM first. Most of these loans are considered first-time loans.
