Residential Credit: Non-QM Improving Lending Standards Amid Rapid Share Growth

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Residential Credit: Non-QM Improving Lending Standards Amid Rapid Share Growth

IdeaM

Non-QM Lending Standards and Delinquencies

Last month, we published our Mid-Year Outlook which included an updated forecast for

2026 Non-QM RMBS issuance of $105bn. That would represent a 46% increase from

2025, which is actually a decline from the pace the Non-QM market is on through the end

of May. By our estimate, Non-QM RMBS issuance is up 81% through the first 5 months of

the year.

It is worth noting that this increase in origination volumes is coming at a time that overall

home sales volumes are...unimpressive at best. If we judge the quality of our talking points

by when a client is driven to start taking notes, the discussion on Non-QM growth as a

share of mortgage origination was one of the more closely followed pieces of that specific

section of our outlook.

The cliff notes of that discussion are as follows:

• From 2021 to 2025, total first lien origination volume fell 57% from $4.4tr to

$1.9tr.

• This was largely a function of vanishing refinance volumes, which fell 78% to

$0.6tr while purchase volumes contracted a comparatively paltry 26% to $1.4tr.

• We estimate that Non-QM originations actually grew 125% over the same time,

from $48bn to $108bn, increasing from 1.1% of total first lien originations to 5.5%.

When we see that kind of growth, our instinct is to examine lending standards. Is Non-QM

gaining share because a widening credit box is crowding in volume (potentially at the cost

of increased default risk), or are there more organic reasons for growth? An examination

of the underlying trends lead us to believe the answer is the latter. In fact, standards

appear to be tightening along several important vectors. This (welcome) evolution of