Chapter 34 — Further Reading

Non-QM is the least documented corner of residential lending, and that is a fact about the sources as much as about the market. There is no Selling Guide for non-QM. There is no free, public, authoritative rulebook you can read tonight. What exists is: the regulation that defines the boundary (which is excellent and free), the agency guides that tell you what the borrower could have qualified for instead (also excellent and free), and then investor-specific matrices that are neither public nor stable.

Read the first two carefully. Treat the third as perishable and get it in writing.

If you read only one thing

Regulation Z, 12 CFR §1026.43 — "Minimum standards for transactions secured by a dwelling." Free, public, and the actual source of every claim in §34.1 and §34.2 of this chapter. Read paragraph (c), which sets out the Ability-to-Repay determination and the underwriting factors a creditor must consider; then paragraph (e), which defines the qualified mortgage categories and the safe harbor; then paragraph (g), which is the prepayment penalty rule from §34.8. It is perhaps twenty pages of careful English, and it will make you the person in your office who actually knows the answer.

Pair it with the CFPB's own Ability-to-Repay and Qualified Mortgage small entity compliance guide, which restates the same material in plain language with examples. Free from the Bureau. Confirm you have the current edition — the General QM definition has been amended and the guide is reissued.

Tier 1 — Verified canonical

These exist, we can stand behind them, and they are the authority.

• Truth in Lending Act (TILA) and Regulation Z, 12 CFR Part 1026 — the source of Ability-to-Repay, the QM definition, the prepayment penalty restriction, and the higher-priced/high-cost thresholds. §1026.43 is the operative section for this chapter.
• Dodd-Frank Wall Street Reform and Consumer Protection Act (2010), Title XIV — the statute that added the Ability-to-Repay requirement to TILA and created the modern architecture. Read the title headings alone and you have a map of post-crisis mortgage law.
• Consumer Financial Protection Bureau — rulemaking, compliance guides, and supervisory highlights. The Bureau's regulatory implementation pages carry the current versions of the ATR/QM materials, including the amendments to the General QM definition and the Seasoned QM category. Everything there is free.
• Equal Credit Opportunity Act (ECOA) and Regulation B, 12 CFR Part 1002 — the prohibited bases, the discouragement prohibition, and the narrow provision permitting consideration of immigration status where it bears on the creditor's rights regarding repayment. Directly load- bearing for §34.7.
• Fair Housing Act — the second statute governing §34.7, with an overlapping but not identical list of protected characteristics.
• Fannie Mae Selling Guide and Freddie Mac Seller/Servicer Guide — free, public, searchable, and continuously updated. In a non-QM chapter these matter because they are the standard you must test the borrower against first. The self-employment history requirements, the cash flow analysis, the treatment of employment-related assets as income, the rental income provisions, and the requirements for non-U.S.-citizen borrowers all live here.
• Fannie Mae Form 1084, Cash Flow Analysis — the worksheet Chapter 32 teaches and §34.10 depends on. Free from Fannie Mae. Download it and fill one in by hand once.
• Fannie Mae Form 1007, Single-Family Comparable Rent Schedule, and Form 1025 for two-to-four unit properties — the appraiser's market rent opinion that sits in the numerator of most DSCR calculations.
• HUD Handbook 4000.1 — the FHA authority, relevant here mainly for the non-U.S.-citizen eligibility provisions and as another agency option to rule out before pricing non-QM.
• Internal Revenue Service — Individual Taxpayer Identification Number (ITIN) guidance, including Form W-7 and its instructions. The authority on what an ITIN is, who receives one, and what it does and does not signify.
• Financial Crisis Inquiry Commission, The Financial Crisis Inquiry Report (2011) — the congressionally chartered investigation into the causes of the crisis. The chapters on mortgage origination and securitization are the primary source for Case Study 34.1. Free and complete online. Read the figures at the source rather than repeating them secondhand.

Tier 2 — Attributed, specifics unverified or perishable

Real, useful, and changing. Attribute honestly; verify before you quote.

• Your investors' non-QM guideline matrices and rate sheets. These are the actual governing documents for every file in this chapter and there is no substitute for them. They are not public, they differ materially between investors, and they change without notice. Build a habit: request the dated matrix, save it with the file, and note the version you priced from.
• Structured Finance Association and similar industry bodies publish material on the non-agency and non-QM securitization market — issuance, structures, and standardization efforts. Useful for understanding why the price is what it is. Treat any specific volume or spread figure as a snapshot.
• Rating agency pre-sale reports on non-QM securitizations (Fitch, Moody's, S&P, DBRS Morningstar, KBRA). Frequently free to read and unusually revealing: they describe, in detail, what documentation types are in a pool and what the agency thinks of each. This is the closest thing to a public description of non-QM underwriting standards that exists.
• Urban Institute Housing Finance Policy Center, monthly chartbook — free, well sourced, and useful for the shape of the non-agency market over time. Figures are as of publication.
• CoreLogic, ICE Mortgage Technology, and similar data providers publish periodic commentary on non-QM origination volume and characteristics. Real but commercial; cite as of a date.
• State licensing and lending statutes on prepayment penalties. Several states restrict or prohibit them, including on business-purpose loans, and some limit duration or amount. There is no national answer. Your compliance department and your state regulator are the sources.
• NMLS and the SAFE MLO Test Content Outline — for the exam-relevant framing in §34.8 and §34.2. The outline itself is published; the weighting is revised.

Tier 3 — Illustrative and constructed (this book)

Everything in this chapter that carries a dollar sign and is not attributed to a public source:

• The Linden Street, Cypress Court, Fulton Avenue, and Harlow Street files, and the Linden Street non-QM counterfactual in the Loan File section.
• The twelve-month bank statement analysis worksheet (Figure 34.1) and every parameter in it, including the 50% expense factor, the exclusion set, and the NSF cap.
• The 1099-only and P&L-only derivations.
• The asset depletion worksheet, its haircuts, and its divisors.
• The DSCR worksheet, its rate, its rent, its operating assumptions, and the −\$554.18 net cash flow.
• The interest-only and prepayment penalty structures and every figure derived from them.
• The non-QM rate build in §34.9 and all pricing comparisons, including the \$182.37 per \$100,000 spread.
• Both case studies' composite borrowers and every figure in them.

None of these is a market quote and none is a guideline. They exist to teach structure. The structure is what transfers; the values are perishable and investor-specific.

A note on how to read a non-QM guideline

Because the sources are thin, the reading skill matters more here than anywhere else in the book. Four habits:

1. Date everything. A matrix without a version date is not a document, it is a rumor.
2. Read the definitions section before the eligibility grid. Non-QM matrices redefine ordinary words — "qualifying deposits," "expense factor," "reserves," "market rent," "debt service" — and the definition is where the loan is actually made or lost.
3. Find the sentence that says which payment goes in the denominator. On a DSCR program with an interest-only option, that one line moves the ratio by a tenth of a point. §34.8 works the arithmetic.
4. Get the answer to your specific question in an email, not on a phone call. You will need it in four weeks when the underwriter reads the matrix differently than the account executive did.