Tom Davis shares non-QM opportunities to capitalize heading into 2025

In this HousingWire Executive Conversation, Tom Davis, Chief Sales Officer at Deephaven, discusses the opportunities in the non-QM investor loan space as we head into the new year. He emphasizes the importance of a diverse product portfolio including DSCR and business-purpose loans, to better serve clients. Davis also highlights Deephaven’s edge in products like their Ground-Up Construction and Fix-and-Flip products, offering originators essential tools and training. Davis believes that by aligning with the right lender and expanding product offerings, originators can position themselves as valuable partners in a shaky market.

HousingWire: With investor transactions still playing a significant role in the current housing market, what (or where) are the most significant opportunities for originators to tap into the non-QM investor loan space?

Tom Davis: Investor transactions are still close to 28% of the overall purchase market. There is plenty of opportunity in the investor space if you are offering the right products. Having a full suite of investor products that includes non-QM allows you to serve first time investors as well as professional investors. Many investors prefer to close in the name of an LLC. Do you have business purpose loans in your offerings? If not, now is the time to partner with a non-QM lender to make sure you don’t miss out on opportunities that can really make a difference in your volume. 

Having a complete investor product suite is the difference between saying yes or no to an investor who does not meet agency guidelines. Agency loans have limitations such as loan amounts, only allowing up to ten financed properties and they don’t accept five to nine units.

Non-QM opens doors for real estate investors. Close one loan for a real estate investor and you have a repeat client for life!

HW: Debt Service Coverage Ratio (DSCR) loans have become essential for investors. Can you explain how these loans benefit both investors and originators, particularly in our current market environment?

TD: DSCR loans are one of the easiest and quickest loans to close. They allow real estate investors to qualify on the rental cash flow of the subject property. It is a much simpler approach versus an agency loan. Qualify on the cash flow of the property, satisfy a few other requirements and it’s done.

Features of this popular loan for real estate investors include the ability to cash-out to buy more investment properties. Investor demand for the products has caused pricing on DSCR loans to be highly competitive and sometimes more competitive than Agency investor loans. 

Originators should understand that DSCR and non-QM loans allow them to differentiate themselves and strengthen Realtor relationships in today’s challenging market. Helping Realtors close more transactions is invaluable. It will lead to more referrals for Realtors and for you. The word gets out and the next thing you know, you are the go-to expert for investors and Realtors.

HW: We’re seeing an uptick in ground-up construction. What specific advantages does Deephaven offer for originators working with investors on these types of projects?

TD: There will be an uptick throughout the rest of 2024 and into 2025 due to a deficit of 5-7 million homes. Ground-up construction growth will be high to meet the population growth and meet the demand due to limited inventory.  New construction volume levels have increased to 10-year highs with a percentage share of 33%. With this type of supply and demand issue, originators should figure out how to serve investor clients with new construction transactions.

Deephaven offers an advantage and competitive edge with our Ground-Up Construction loan. We have access to and business purpose financing with loan amounts up to $10 million for builders, developers and experienced real estate investors. We also have webinars and trainings for originators to become experts in the space.

HW: The fix-and-flip market continues to see strong demand despite inventory challenges. How does Deephaven support originators who are serving clients in this space?

TD: We support originators by offering a Fix-and-Flip product and educating them on how to market it to their investor clients. These loans offer originators a solution to address the housing shortage. They have the opportunity to help with rehabilitating old, uninhabitable housing stock in many cities and bring them back to the market. 

The Fix-and-Flip program is great to serve to investors and tap into that market. Deephaven can help originators with how to be successful in the investor space.

The bottom line is that investors are great lead sources because they usually do frequent repeat business with the originator.  Originators who add a full suite of investor products including DSCR, Fix and Flip and Ground-Up Construction loans are delivering a solution to bring more housing back into the market. Rehabs will be invaluable to reopen inventory. The originator who makes this happen will also be invaluable. 

HW: From a broader industry perspective, what strategies should originators consider when positioning themselves to serve investor clients effectively in a challenging market?

TD: We expect the investor space to continue to grow with new construction and investor transactions comprising a large percent of the market. A prudent strategy would be to align with a lender that can provide a full suite of investor loans. This will allow them to serve investors, builders and developers.

A housing shortage does not mean a shortage in investor transactions. There is ample opportunity that can be found by being a part of the solution. Pick up the phone and contact Deephaven to find out how we can be a full-service resource for investors. We are a one stop originator shop for investors for any type of transaction they wish to execute. The best strategy in today’s market is to continue to learn more about adding new product offerings to serve all borrowers. Non-QM is where to look.

HW: For lenders or originators interested in expanding their non-QM offerings, what steps would you recommend, and how can they learn more about partnering with Deephaven?

TD: As we head into 2025, I highly recommend originators think about their plan and goals. Tapping into new construction in investor markets should be a part of your plan in 2025. Investors run into challenges trying to build their portfolios every day. Become their go-to resource with the answers and solutions they need. Learn to be a product knowledge expert. 

How? As I mentioned, partner with Deephaven to get training. Other suggestions are to listen to panels, visit investor clubs or networking groups and become a member. Be visible and drive awareness with your Realtor base and the investor community in your local market. Get it started with Deephaven and see what happens.