By the Numbers
New entrants and AI help lift non-QM MBS volume
This material is a Marketing Communication and does not constitute Independent Investment Research.
Non-QM issuance has already topped last year’s total, and the market could reach $125 billion this year. Several forces are driving the increase. Large non-bank lenders are expanding into the sector with greater scale. High mortgage rates have squeezed agency originations and gain-on-sale margins, pushing lenders to diversify. And artificial intelligence is beginning to streamline the manual underwriting of non-QM loans. These trends and other factors have pushed up originations and issuance.
Non-QM issuance surpasses last year’s total
Non-QM issuance reached $78.4 billion through August, about $3 billion above last year’s full-year total. Other sectors have also surpassed last year’s volumes, though on a much smaller scale. Issuance backed by second liens has edged above last year’s total, while private-label deals backed by agency-eligible loans jumped to $16.2 billion through August from $9.2 billion last year. Prime jumbo issuance, by contrast, has lagged, totaling just $23.2 billion this year versus $28.1 billion in 2025 (Exhibit 1).
Exhibit 1: Non-QM issuance rises to $78 billion through August
Source: Santander US Capital Markets, Creditflow
The recent rise in benchmark and primary mortgage rates could slow originations, but securitized volume could still reach $125 billion this year. In recent vintages, fourth-quarter issuance has accounted for an outsized 27% to 29% of annual volume. Assuming $10 billion of issuance in September and a 29% fourth-quarter share, issuance would total roughly $36 billion in the fourth quarter and $125 billion for the year. At a 70% securitization pull-through rate, that would imply approximately $175 billion of loan originations.
Higher mortgage rates remain a headwind, but several other factors support continued growth. Non-QM deals are getting larger: as recently as six months ago, a $1 billion non-QM securitization was unusual; today, such deals are relatively commonplace. Larger transactions are being fueled in part by larger loans, as sponsors seek better execution in non-QM structures than in shifting-interest jumbo deals. Demand has also been strong at the AAA level, although the support appears to reflect greater participation from existing buyers rather than a broader investor base.
More large originators embrace non-QM lending
A key driver of production growth is the expanding presence of large non-bank originators, which bring deep broker and correspondent networks, greater capacity, operational efficiency and economies of scale. Three of last year’s five largest non-QM originators by volume—United Wholesale Mortgage (UWM), CrossCountry Mortgage and Guaranteed Rate—have historically focused primarily on agency lending but have expanded their non-QM businesses. UWM originated roughly $6 billion of non-QM loans last year, up 15% from the prior year, for a 5.5% market share. CrossCountry Mortgage originated $5.7 billion, an increase of nearly 70% from 2024, for a 5.4% share. Guaranteed Rate originated $5.4 billion, up 145%, representing about 5% of the market.
Agency-focused originators historically have been reluctant to invest in the infrastructure required to originate and fund non-QM loans. Many viewed non-QM demand as a temporary result of higher rates and expected a cyclical market in which lower rates would revive refinancing and widen gain-on-sale margins.
Nearly four years of high mortgage rates have likely challenged that assumption and encouraged more lenders to invest in non-QM production channels. Higher rates have weighed not only on agency volumes but also on profitability. Data from the Mortgage Bankers Association show that pre-tax production profits among surveyed independent mortgage bankers were 25 basis points in the second quarter and 16 basis points in the first quarter of this year. Against a historical average of 40 basis points, those results represent shortfalls of roughly 37% and 60%, respectively. Because non-QM lending can generate much wider margins, the sector has become increasingly attractive to agency lenders facing lower volumes and tighter profitability.
A lift from AI
The industry may still be some distance from using AI to approve mortgage applications outright, but originators are already deploying the technology to streamline labor-intensive underwriting workflows. Bank-statement lending is one area where the impact is becoming visible. According to HousingWire, originators including Angel Oak, Sierra Pacific and Logan Circle are using technology from Prudent AI to automate parts of the bank-statement review process. Angel Oak reported a 400% improvement in underwriting productivity after implementing the technology, while Sierra Pacific’s chief operating officer said reviews of 12-month bank-statement loans fell from about an hour to 15–20 minutes.* More broadly, a shortage of experienced manual underwriters has been a constraint on non-QM growth. AI can extend the reach of that expertise by screening documentation for inaccuracies and defects, potentially increasing production capacity and lowering costs for borrowers.
Other factors
Continued home-price appreciation could also support gross originations. Higher property values can make it more difficult for investors to qualify for loans underwritten against borrower income, increasing the appeal of debt-service-coverage-ratio underwriting, which qualifies loans based on a property’s rental income rather than the borrower’s personal income and is a feature of the non-QM market. Rising home values are also giving borrowers more equity to tap. Cash-out refinances have increased in recent years and represented 11% of collateral backing deals last quarter, up from just 4% in the second half of 2024.
*Prudent AI is helping mortgage lenders cater to gig economy workers – HousingWire May 21, 2025
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