Why non-QM is keeping top mortgage brokers in business

Kevin Oto: Nobody knew what a high rate looked like. I’m always optimistic. Even in markets like this, I feel like there’s always opportunities. 

Matt Sexton: Hello again and welcome to the latest edition of MPA TV. I’m Matt Sexton, mortgage journalist here with Mortgage Professional America. Today we continue our broker intel series featuring discussions with the top mortgage pros across the US on the most important mortgage topics of the day. I’m honored to be joined once again by two esteemed guests on this episode. They are Kevin Oto, broker owner of Pinnacle Mortgage Corporation, and Damon Germanides, co-founder of Insignia Mortgage. Gentlemen, thank you so much for joining us on today’s edition of MPA TV. Thanks for having us. Yeah, a lot has happened since the last time. 

Matt Sexton: we chatted. So, let’s dive right into where the market is since the last time we spoke. Obviously, mortgage rates have increased now floating back toward the mid7s, although we did get a little bit of a reprieve today from the Freddie Mac rates. We’ll start with Kevin on this one. What direct or indirect impact have you seen rates have on your business if any? 

Kevin Oto: I mean, obviously it has had an impact. You know, obviously the biggest impact which you would see right away is affordability, but really other than that is there’s like a psychological effect that I’m seeing with my borrowers when rates go up. it just affects their confidence and their urgency and you know they get to this analysis paralysis and they start becoming uncertain you know they think about maybe should I wait are rates too high are they going to come back down so you know really the rates go up they still may qualify but it just creates that uncertainty Damon your thoughts. 

Damon Germanides: I mean yeah Kevin’s spot on I feel like uh just having done this for so many years feel like anything under 6% is uh people are uh happy to go buy a home. Uh where we are today um a lot tougher to qualify folks. Uh some folks even if they do qualify uh the payments are higher than they imagined especially like you know we’re a uh I’m not sure where Kevin’s at but we’re out of California predominantly so obviously costs are high here on insurance on all other cost of living. So, putting that all into the, you know, kind of bundling that all together as part of their process after they know what the home financing is going to cost. You know, lot lots of lot lots of uh tension there on whether or not they want to move forward. Um, and you know, and I will say this though, uh, it’s not a direct answer to your question, but we’re we’re working very hard, as I imagine Kevin is too. I am sourcing so many banks, credit unions, non-QM lenders, trying to find an edge. Uh who needs volume? Who’s going to price sharper? Uh what local banks that we have access to are maybe uh not as uh needing volume. So maybe keeping rates uh you know under that seven, maybe in the low sixes. And so that’s that’s been the positive in a market like this. But the general trend is not our friend here at the moment. So, uh, definitely, uh, a difficult time to approve, uh, borrowers for financing. 

Matt Sexton: That kind of leads into the next question. So, Damon, we’ll just stay with you to start this one. Obviously, there’s opportunities in every market, no matter what rates are. What would be your advice to mortgage brokers out there as it relates to trying to find these opportunities in the current market? I mean, look, I think it’s like you got. 

Damon Germanides: to be a student of the game here. like this isn’t like just take the call and pass it on to your processor to figure out, you know, is it going to it sounds like it works great. I mean, these are I could just speak the way I’m attacking uh like yesterday is a great example. I had four uh you know, four folks call me for loans. Two actually, two and two refinances, two um uh purchases. I mean, I spent 45 minutes on each call trying to figure out if I could help them because we had to go that deep because there’s so much going on. There was a lot of questions. Um I wasn’t sure if we needed to bring a co-barorrower in. I was explaining to them on one self-employed borrower, we can do a bank statement loan and a combination of a pay stub for your wife. Like going through all this takes time. Um so that those in the in a few years ago, those four calls would have been done in 15 minutes, maybe an hour total with all four. So it’s 3x the upfront uh effort. Same thing applies on the back end. our team, you know, who, you know, day by day pricing is volatile. Who’s in the market? Who’s out of the market? Who’s got that niche for the non-QM product that the that’ll make this loan work? It’s really, you know, you have to be very uh diligent about uh your lenders and who does what well and putting that into the memory bank. And obviously some of this is helpful with AI now too where you can you can uh start to feed it a lot of information, guidelines and stuff and have it help you be uh guide you where the deals should go. But yeah, that’s that’s I mean that’s that’s what I’m I’m doing. 

Matt Sexton: Kevin, your thoughts? Yeah, I agree with a lot um with what Damon said, but you. 

Kevin Oto: know, from a borrower perspective, um you know, I’m spending less time trying to convince someone that rates aren’t that high and you know, it’s still okay time to buy, but it’s really from a borrower perspective, asking a lot of questions, spending more time like Damon said, but how can we create a transaction that makes more sense and just kind of reminding people that, you know, if it is more of a buyer market, there’s opt there’s actually more opportunity, right? There’s negotiation for the purchase price. Maybe we can get seller credits to do a 2-1 buydown or a permanent buy down or looking at ARMs or changing your down payment or just comparing different, you know, financing strategies just to try to make the deal make sense, right? And if the buyer can get a credit for a 2-1 buydown or get the house 20 grand under what they’re expecting, you know, in the long run, that could be still a good deal for them. Um, but really I understand it is harder to find new clients, but like Damon said, leaning on different lenders, seeing what products they have, trying to find solutions for these borrowers that, you know, are scared off by the higher rates. But a lot of times, you got to just look at the market you’re in and look at how to solve the market you’re in. It’s not waiting till rates drop. It’s not, you know, hoping things change. It’s like, look, this is the market we’re in, and this is how we’re going to solve the problems and get you in a home and get you a comfortable payment. So, um, it’s really just spending more time with borrowers, looking for more opportunity, and trying to take advantage of having less buyers in the market. Kevin, I’d. 

Damon Germanides: like to that you make a really good point and I was just at a real estate office and the there was a lot of questions from realtors uh at this meeting that normally they didn’t ask about the treasury market, what’s driving inflation, what’s what’s driving rates higher and then productwise these uh in we’re we’re more of a jumbo lender. So 2-1 buydowns the jumbo space is not that common. I mean, it’s there, but not at like some of the portfolio banks we work with, but there are a couple that offer that. And that was a great uh that was a great um conversation with the realtors because they didn’t really know how they those things even work. So, we walked them through the calculation and how you could go back to your seller and say, “Okay, you don’t want to drop your price by 50 grand because you’re worried you’re going to have to keep doing it. offer a lower mortgage uh rate by giving a credit to the to the to the uh to the for the buy downs and then if that doesn’t work then you can go back to your seller and say look we’re going to have to reduce the price if you want to sell but giving another tool in the toolkit and again I’ve been doing this for so many years most of the time at these lunch and learns and stuff you know four or five people show up I mean it was a full house if that’s any indication what’s happening in and you know of the realtors trying to figure out Okay, how can I get some, you know, get this get some activity going? You know, how what could I do to kind of educate my seller on what’s going on and then what could I offer them to maybe get them to uh help move this home? So, I think that’s a great point you made, Kevin, with these buy downs. Thank you. Yeah. Well, I’d like to add. 

Kevin Oto: one more thing, too. So, like I also notice when you know things are slow, there’s a lot of agents and there’s a lot of loan officers that actually take time off, too. So that gives you an opportunity to capitalize on maybe some new relationships. I actually I’m part of real producers in our area in Sacramento. I’m in California as well. I hosted an event yesterday and I talked to a few agents and they actually said, “You know what? My loan officer hasn’t been as responsive as lately. She has a family. She’s with her kids, which is great, but you know, when business is slow, sometimes they check out and focus on other things. And unfortunately, that gives opportunity for people who are in the business at their desk every day to capitalize on new opportunities as well. 

Damon Germanides: 100%. That’s such a great point. And by the way, those realtors and the downtime if you’re helping them and really trying, that’s a great way to build like sticky long-term relationships because you’re everybody knows it’s tough, right? And I again with Kevin, perfect, you know, point as a pro. Yeah, we’re not going to sell that rates are great or whatever. I mean, rates are high. They’re not like they’re they’re just back to historical norms, maybe a little bit above now, but this is we’re just coming off such a low level of interest rates for so many years. I mean, almost dating back to when I started the in my career like in ‘ 04. So maybe by ‘ 07 till 2023, nobody knew what a high rate looked like. I mean, so uh you know, it’s it’s definitely a different world and it the it happened so fast. Uh, I mean it didn’t go up gradually. It went up all with inside of six months. So, it’s a it’s been a big adjustment period for a lot a lot of folks. 

Matt Sexton: Absolutely. Great stuff, guys. One of the things I want to talk a little bit about this month at MPA, we’ve been focused on non-QM lending. It’s obviously been a growing sector. We’ll start with Kevin on this one. What are your general thoughts about what non-QM and non- agency lending has done with the mortgage industry, especially considering its continued growth here in 2026? 

Kevin Oto: You know, non-QM has never been a huge part of my business. But recently, when markets get tougher like this, you find yourself stumbling into more non-QM loans. I recently did a non-warrantable condo, more bank statements, a DSCR loans. So, I actually think non-QM has really helped the mortgage industry catch up with the way people actually earn and invest money, right? Not everyone’s a W-2, stable employee, predictable income. You know, things change. You know, you have business owners, consultants, like I had, you know, a music producer making, you know, royalties that was hard to prove. So, there’s really a lot of different ways people are making income. And I think this non-QM product has really just given a lot of opportunity to not just loan officers but you know home buyers and people out there to really qualify for good loan programs that they wouldn’t have qualified for before. 

Matt Sexton: Damon, your thoughts? 

Damon Germanides: I mean non-QM has kind of been what we’ve we’ve always done even before it was called non-QM. Um look, I think it’s it’s a major difference maker. It’s it’s probably the reason why we’re we still have the lights on. I mean, if we were just relying on traditional jumbo financing, uh, with the outlets that we have, uh, it would be very tough. Uh, the ability to go to a borrower and say, I can do a, uh, like a portfolio bank loan, and if that doesn’t work, I can go to a like a different product that’s a little bit wider with respect to guidelines. Interest rate not that all that much different. Um and then when you have these situations where you have a borrower who has a W-2 but a bunch of non-passive losses uh or passive losses on the tax return, other types of activities that are going on, you could just focus on the income from the W-2, not even deal with the tax returns. These are these are major difference makers and uh um without the product, I mean, we would candidly in our market be in trouble. I mean there it’s probably every other loan is going non-QM route right now. So one it used to be maybe every third or fourth loan but like Kevin was saying with affordability where it is I mean uh self-employed borrowers I think are more risk tolerant and they also uh understand their cash flows in even if they don’t know them perfectly intuitively given what their expenses are what they’re rolling into their business expenses that they can adjust or whatever. So, these products are allowing folks to buy homes. All we need is that we need we need home prices to come in a little bit to adjust for the higher rates and we’ll we’ll see, you know, I think that’s kind of what we need if rates stay up here to kind of reactivate the market. But, but the non-QM stuff is that it’s it’s big uh for us right now. Very big. Another thing I wanted to talk a. 

Matt Sexton: little bit about is especially in the technology front, it feels like things are changing so quickly. Damon, we’ll start with you. Is there any new technology or maybe it’s new products or just a new way of doing business that you found over the last year that could be something that brokers could use to uh help get them more business especially in this current market? I. 

Damon Germanides: mean, look, the AI and the automations and the ability to read uh unstructured data uh is huge. Uh we’re spending, you know, unfortunately, in a tough market, a lot of money on really uh re imagining our uh internal uh processes and where these fantastic tools can help us. Um, you do got to be careful because it’s not like you can take someone’s personal information and put it on a, you know, a chat GPT that’s not been or one of these, uh, uh, you know, kind of AI tools that hasn’t been, uh, ring fenced internally because you don’t, you do not want that stuff leaking out. Um, but I see a world where uh an a loan officer inside of a couple years, even a small shop, can have uh connect their CRM, to their LOS, to their email, to their Box accounts or where they’re storing the data uh to their LinkedIn, to their all of their social stuff and kind of get a run by day type of dashboard where you’re reminded that John, you know, ex borrower called you 6 months ago for a loan. This time, maybe you should check in. These three realtors have just posted new homes on LinkedIn, LinkedIn or on some social media or MLS. Hey, that you’ve done like bunch of stuff for them. Why don’t you go call them, see what’s going on? Like all of these things to just help manage your day. Like for me, I got so much going on sometimes I forget to email somebody back, which is fine if it’s something not important, but what if it’s a lead that came in at like five o’clock and I was distracted? like I should be getting back to that person right away just like Kevin said previously because in this market dude that realtor is relying on you to connect right away because he might he or she might only be selling a few houses this whole year. So if you’re like that slips till tomorrow like that real estate broker’s calling the next loan broker uh for the next deal because that guy’s going to get back to them right away. So all of these things just to make you more efficient and better um uh be more responsive and um you know more control of your of your pipeline and informed of what’s going on even internally or externally with the with your clients and with the market. 

Matt Sexton: Kevin, your thoughts? Yeah, I agree with them. I mean, we’ve. 

Kevin Oto: been investing some time and money in, you know, AI governance and making sure that we’re using AI responsibly um to really just eliminate a lot of repetitive tasks, become more efficient, limit the errors, and just help our loan officers just better convert their leads, and just be sharper. Um, I know it’s going to come to a point where most of these tasks are going to be automated and it’s really going to boost efficiency, but just to be one step ahead, putting tools in place and making sure that we’re giving our loan officers everything that they could possibly get to give them the edge, to be more competitive, to help convert, to be smarter, faster, stronger. I mean, that is what we’re doing right now. 

Matt Sexton: One thing I wanted to ask both of you, we’ll start with Kevin. This kind of a busy time of year for trade industry shows just came off of NAM personally. Uh but it was a stretch of shows that a lot of brokers are headed to. Just curious to get your general thoughts about these shows and these trade groups and if there’s, you know, one thing that might be really good about what they’re doing and maybe something that they could do better to either make the shows better or just make the or make the mortgage industry better. 

Kevin Oto: I mean, for me personally, I feel like I need to go to more shows. It’s been it’s been actually a couple years since I’ve I’ve been to any. But I think the best thing about it when I did go to any of these shows was just getting out of my own company’s bubble and just meeting these other people, meeting, you know, networking, seeing what they’re doing different differently than what I’m doing. I think that added a lot of value. Um, you know, as far as what they can do differently, I think some of the information you get from some of these people are just surface level. There may be some gatekeeping. It may not be all that helpful, but I found the thing that is most helpful is really just building the relationship and just seeing what other people are actually doing differently and trying to get some value from that and actually sharing what we do as well just to try and help the other people in our industry as well. Damon, your thoughts? 

Damon Germanides: Well, to my wife’s displeasure, I’ve been a big show guy for a long time. Not too many, but I’m on my I’m on my circuit starts actually uh Monday. I’ll be at uh I’ll be on our private uh direct lending business. I’ll be at a conference there. Then I’m headed to a uh another conference and then and then I got another conference and then two more uh beginning of next year. Um so uh but in terms of what I try to get out of them um you know they’ve been very valuable uh for um general information on you know what’s going on in the economy. Uh get a lot of value out of that. Meeting a lot of different vendors all at once. you know, kind of understanding what’s coming down the pike with respect to technology. Um, meeting folks in the industry. Uh, I mean, we found a uh at these conferences through the years. I found a bank to do business with. I found a whole loan buyer on our bridge lending business at them. So, they’ve been they’ve been valuable. Plus, you meet people in your industry uh that like Kevin was saying that you could connect with and you share information and just someone to talk to. Um so yeah, I’ve I’ve gotten conferences have treated me well, but I do pick the ones that make the most sense. I just don’t go to go. And I do think the one thing that I think is missing in a lot of these things is there a way to bring um like brokers, mortgage brokers or mortgage bankers together with any of the actually the real estate um uh agents that might be there or real estate, you know, other types of brokers that do different things. So, it’s a little bit not all conferences are created equally, but the some of the networking stuff can be a little bit uh like just it’s not really um that thought out and so that makes it a little bit hard to go find who you really want to talk to. Sure, you can look through the app, but that there might be 600 people there like how you doing that. So, I just, you know, I’m sure that would be my only gripe sometimes with these things. Totally makes sense. I’ll leave you with. 

Matt Sexton: this last question, Damon. I’ll start with you on this one. Well, since we’ve talked about some heavy topics, let’s try to find a silver lining to wrap up as we head toward 2027. What is one thing that you’re optimistic about? Uh whether it’s about your business individually or the market in general as we head into the new year. 

Damon Germanides: I mean, I think two things. Uh again having been at this for like 25 years uh just about or 24 years um you know instinctively it’s I feel I’ve got a good emotional memory of things and I’m sensing like in a different way you know not um not a great financial crisis kind of event but I am seeing stresses and uh you know with the rates and everything else. So maximum pain uh with our with our colleagues like you’re going to see people just not uh be in the business anymore as Kevin was saying they’re just not making any money. So like how long do you go without doing a deal before you say this isn’t for me. Um so I think if you can get through to the other side there’s still a need for these services. I think that’s good. And the other thing I believe will happen, again, we’re more of a jumbo focused uh originator there. There’s a lot of loans that are starting to uh adjust. So, a lot of these seven-year arms that were taken out during COVID or before when rates were low, five-year arms, people thinking they were going to move in 5 years, those are all coming uh to adjustment periods. and those rates, if you count the uh interestonly period burning off and the amortization getting squeezed, those payments are going up almost 3x. So people are going to be forced to make a decision to either refinance or sell. And so I think 27 if is going to be a better year for refinances. And then hopefully if again if rates come down or home buyers start to accept a little bit less, you get a little drop in price. I think the combination can put the business in a better place uh than it is today. 

Matt Sexton: Kevin, your thoughts? I’m always excited about the market. 

Kevin Oto: I’m always optimistic. Even in markets like this, I feel like there’s always opportunities. Even when, you know, people might be taking time off, I’m investing in my business, investing in relationships, thinking how I can better prepare myself. So if rates do drop next year, I can capitalize on all these loans and more and capitalize on more market share. So, you know, I’ve been in it for over 20 years as well. I started in 2004, so I understand that there’s ups and downs. And, you know, if there are down times when rates are higher, the longer that is, the bigger the refi boom down the line of rates drop. So, it’s all about being patient, being smart, and investing with your business in your business. And I believe that, you know, when the market shifts to our advantage, you know, we’ll be there to capitalize. 

Matt Sexton: Closing with a little optimism today on MPA TV. That’s going to wrap things up for this edition of NPA TV. Thanks again to our guest and thank you for watching this edition of MPA TV. For my guest, I’m Matt Sexton saying so long and we’ll see you again next time.