Non-QM Loans 2026: What They Are, Who Funds Them, Defaults

What the regulation says makes a loan non-QM

A common shorthand is that a non-QM loan is one outside Fannie Mae and Freddie Mac. The regulation says something narrower. Regulation Z, section 1026.43, lists what a “qualified mortgage” (QM) must be. Everything that fails the list is non-QM. The list below is from the eCFR text current to October 8, 2026, with the dollar amounts the Consumer Financial Protection Bureau (CFPB) publishes each year in its official interpretations.

The general qualified mortgage test (12 CFR 1026.43(e)(2) and (e)(3))

Two points on the table. First, the current text sets no numeric debt-to-income cap; the rule asks the lender to consider the ratio (our reading of paragraph (e)(2)(v)). Second, the price limit works against exactly the borrowers who use alternative documentation: a lender that charges a self-employed borrower 2.25 points over the benchmark has made a non-QM loan whatever the paperwork looks like. What the paperwork does is covered on our bank statement loans page.

A non-QM label does not switch off the ability-to-repay duty. Paragraph (c)(1) says a lender “shall not make a loan that is a covered transaction unless” it makes a reasonable and good faith determination of ability to repay, and paragraph (c)(2) lists eight things to consider, including “The consumer's monthly debt-to-income ratio or residual income” and credit history. What the QM label buys is a presumption. A lender may presume compliance “if the loan is a qualified mortgage” (15 U.S.C. 1639c(b)), and under 12 CFR 1026.43(e)(1) a qualified mortgage that is not higher-priced gets a safe harbor, while a higher-priced one “is presumed to comply”. A non-QM lender has neither (our reading): it relies on the file it built under paragraph (c).

The word “general” in the table matters. Regulation Z has other routes to QM status: loans defined as qualified mortgages by HUD, VA or USDA (paragraph (e)(4)), certain portfolio loans of small creditors (paragraph (e)(5)) and seasoned loans (paragraph (e)(7)). A loan can therefore fail the general test and still be a QM through one of them. The counts below leave FHA, VA and USDA loans out for that reason.

Two things share the name: consumer loans that fail the test, and business loans the rule never covers

Regulation Z does not apply to “An extension of credit primarily for a business, commercial or agricultural purpose” (12 CFR 1026.3(a)(1)). A rental-property loan made to an investor for the business of renting is outside the ability-to-repay rule, so the qualified-mortgage test does not apply to it. Lenders and REITs still call many such loans non-QM, and the public companies that hold them define the term in two different ways, which changes any volume number you read.

Angel Oak Mortgage REIT's 10-K defines non-QM loans as residential mortgage loans that “do not satisfy the requirements for QM loans” and then adds exempt loans, such as investor loans made to real estate investors who do not need to meet the ability-to-repay rules. MFA Financial's 10-Q defines its Non-QM loans as one-to-four family loans that do not meet the Qualified Mortgage definition adopted by the CFPB, and it reports its business-purpose rental loans in a separate line. At June 30, 2026 MFA's Non-QM loans were $5,684,786 thousand of unpaid principal balance and its single-family rental loans $1,166,676 thousand. Rithm Capital's Newrez describes its non-QM loans as ones “that do not meet the qualified mortgage rules per the Consumer Financial Protection Bureau”. When a lender says it funded a billion dollars of non-QM loans, ask which definition it used.

The size of the business-purpose side is large. In the 2025 HMDA file, 423,361 first-lien closed-end originations were reported as made primarily for a business or commercial purpose, $378.3 billion; 416,102 of them (98.3%, our arithmetic) were on investment property and 6,526 on principal residences. Our page on investment property loans sorts those by route, and the DSCR loan guide explains the rent-based product that makes up much of the group.

What the federal record can see: at least 119,502 loans in 2025

The Home Mortgage Disclosure Act (HMDA) file has no field for “qualified mortgage” and none for how income was documented. It does have the loan's structure and its price relative to the benchmark (the “rate spread”, defined by the FFIEC as the difference between the loan's APR and the average prime offer rate). We streamed the nationwide 2025 file of originations, kept first-lien, closed-end, non-reverse loans (4,778,053 rows) and took the conventional (not FHA, VA or USDA), consumer-purpose ones: 2,884,475 loans, $1.198 trillion. Then we flagged each loan that shows a feature the general QM test bars. The flags are indicators, not a QM determination.

Conventional consumer first-lien loans with a feature that cannot be a general qualified mortgage, 2025

It is a floor. A 30-year, fully amortizing loan priced below the price limit looks like any other loan in HMDA, even if the lender made it on bank statements and sold it as non-QM. Fees are mostly invisible too: the points-and-fees field is reported only for loans outside the standard mortgage disclosure rules, so we could not apply the 3 percent test. Small-creditor and rural balloon exceptions are not visible either, so a few flagged loans may be qualified mortgages under paragraph (e)(5) or (f).

Who made them is the surprise. The largest lender in the group is 21st Mortgage, with 10,010 flagged loans (37.2% of its 26,890), every one of them flagged on price; 9,957 are on manufactured homes (construction method 2 in HMDA). Vanderbilt Mortgage and Finance follows (4,159, 25.7%) and then Triad Financial Services (3,568, 24.5%). Those three account for 17,737 of the 119,502 (14.8%, our arithmetic), and 17,661 of the 17,737 are manufactured-home loans. Next are two banks whose flagged loans are almost all large interest-only loans that were not sold during 2025: Bank of America (3,397 flagged, 11.5% of its loans; 3,347 interest-only; median flagged loan $1,005,000) and Morgan Stanley Private Bank (2,245 flagged, 21.9%; all interest-only; median flagged loan $1,155,000). Across the group the median note rate was 7.125%, against 6.5% for the other loans. In all, 1,616 lenders had at least one flagged loan and 3.97% of principal-residence loans were flagged. If you came looking for the wholesale lenders that advertise bank statement loans, the next section is where they show up, because they sell what they make.

Who buys non-QM loans

Private securitizers in the 2025 HMDA data. HMDA records the type of entity that bought a loan from the lender; loans not sold during the year are coded not applicable (our reading). Conventional consumer loans sold to a “private securitizer” (not Fannie Mae or Freddie Mac) numbered 56,113 in 2025, $30.4 billion, or 1.95% of the 2,884,475 loans. Their median note rate was 7.375%, against 6.5% for all the rest. Of the 56,113, 6,759 were also at or above the QM price limit. The count is a floor: a loan made in November and sold in January shows as not sold.

Private securitizers buy prime jumbo loans too, so the buyer type alone does not make a loan non-QM. The table shows both kinds of lender. Eight lenders sold 80% or more of their conventional consumer loans this way (with 500 or more loans sold); together they sold 11,736 (our arithmetic).

Private-securitizer sales by selected lenders, HMDA 2025 (conventional consumer-purpose first-lien loans)

The public companies that fund and securitize non-QM loans (SEC filings, quarter ended June 30, 2026)

Newrez's first-half production more than doubled, up 130% (our arithmetic from $1,026 million to $2,358 million). Redwood Trust, which reports a business line called Aspire for “primarily bank statement and DSCR loans”, is covered on the bank statement loans page. Ellington's 10-Q adds a note on why these deals are built the way they are: sponsors of securitizations are generally required to retain at least 5% of the credit risk, and securitizations of qualified mortgage loans are “generally not subject to the Risk Retention Rules”.

The first table shows what each lender reported to the federal record, not how its loans perform. Angel Oak Mortgage Solutions is the affiliate whose lending platform sources loans for Angel Oak Mortgage REIT; see our Angel Oak Mortgage REIT review.

How non-QM loans perform: 4.2% 60+ days past due at MFA

Public mortgage REITs publish the credit performance of the non-QM loans they hold, which almost no lender's web page does. These are the figures, with the basis stated, because the companies do not measure delinquency the same way.

Delinquency of non-QM and benchmark loans in SEC filings (June 30, 2026 unless stated)

Read the table for scale. At MFA, 90+ day delinquencies are $187.6 million of $5,684.8 million, or 3.3% (our arithmetic), and they make up most of the 60+ figure (78%, our arithmetic). Fannie Mae's guaranty book is measured by loan count, includes foreclosures in its serious-delinquency line and is a different mix of borrowers, so 4.2% against 0.85% is not a like-for-like ratio. It is still the honest picture: the non-QM loans a mortgage REIT keeps are delinquent several times as often as agency loans, at a median original FICO of 740 and a loan-to-value of 64%. The loans a REIT keeps are the ones lenders chose to sell it, and the REIT's own risk factors, in the 10-K of Angel Oak Mortgage REIT, say non-QM underwriting “may be permissive as to the borrower's DTI, credit history, and/or income documentation”.

If you are buying a rental: DSCR loans sit on the business-purpose side

For an investor, the useful fact from the regulation is not the QM test; it is the exemption. A loan made to buy a rental to run as a business is outside the ability-to-repay rule (12 CFR 1026.3(a)(1)), so the lender can underwrite the property's rent instead of your income. That is the DSCR loan. It is “non-QM” by the Angel Oak definition and not part of MFA's Non-QM line, and the owner-occupied rules (the price limit, the prepayment-penalty limits in 12 CFR 1026.43(g)) do not govern it. Check the note, because the exemption covers the lender's duty, not its price: ask for the prepayment schedule and for the rate and points in writing. Our DSCR requirements and DSCR in an LLC pages go through the product.

What a borrower can do with this

1. Find out which kind of loan you are being offered. Ask the lender whether it is a qualified mortgage and, if not, which test it fails (term, interest-only, price, points and fees or income documentation). The answer tells you what protections and costs to expect.
2. Check the price against the benchmark. The CFPB publishes the average prime offer rate in a table updated at least weekly (12 CFR 1026.35(a)(2)). A first-lien loan of $137,958 or more priced 2.25 points above it cannot be a general QM in 2026, and a loan 1.5 points above it is a higher-priced covered transaction under 12 CFR 1026.43(b)(4).
3. Do not expect a prime rate. In the 2025 federal data the median note rate was 7.125% on loans with a non-QM indicator and 7.375% on loans sold to private securitizers, against 6.5% on the rest. Angel Oak Mortgage REIT's second-quarter 2026 purchases carried a 7.34% coupon.
4. Ask whether the loan is for an owner-occupied home or a business. If you will live in it, the consumer rules apply; if it is a rental held for the business of renting, they do not, and the terms (including any prepayment penalty) come from the note.
5. If you are self-employed and want to see how a lender turns deposits into income, read the bank statement loans page, where the lender's published terms sit side by side.

The lenders below make business-purpose investor loans (DSCR and fix-and-flip), not owner-occupied consumer mortgages, so they fit only the investor part of this page and not a home you will live in.

FAQ

Law: Electronic Code of Federal Regulations, 12 CFR 1026.43, 1026.3 and Supplement I to Part 1026 (current to October 8, 2026, read October 13, 2026) and 15 U.S.C. 1639c and 1640 (U.S. Code, 2024 edition, govinfo.gov); amounts for 2025 and 2026 from the official interpretations. Loan-level data: FFIEC HMDA Data Browser, nationwide 2025 originations (action 1), streamed on October 13, 2026 with our script stream_extract_nonqm.py, which kept first-lien, closed-end, non-reverse loans (4,778,053 rows), and analyzed with analyze_final.py; both scripts and the full output are in sources/hmda_output/; field definitions from the FFIEC public LAR data fields; lender names from the FFIEC 2025 filer list. Company figures: MFA Financial Form 10-Q (accession 0001055160-26-000015), Angel Oak Mortgage REIT Forms 10-Q (0001766478-26-000044) and 10-K (0001766478-26-000002), Ellington Financial Form 10-Q (0001628280-26-055148), Rithm Capital Form 10-Q (0001556593-26-000029) and Fannie Mae Form 10-Q (0000310522-26-000064), all for the quarter ended June 30, 2026 unless stated. Counts, shares and sums marked “our arithmetic” are ours. This is analysis of public documents, not investment, legal, tax or lending advice.