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72 5 THINGS YOU NEED IN A NON-QM PORTFOLIO MANAGER Here are the factors investors must consider in this rapidly changing economic environment. By: Janina "Gigi" Woods Feature In the wake of this summer's non-QM market rate and volatility shocks, nonconforming investors are taking a page from the institu- tional investor playbook and placing higher values on non-QM port- folios being serviced on reputable, rated servicing platforms. Doing so recognizes the value of maximizing opportunities in the marketplace and minimizing default, especially Early Payment Default (EPD), and other hurdles non-QM investors encounter in a rising rate market and possible recession. Many of the same high-touch customer tools and tactics highly rated servicers apply in the QM market will solidify the health and value of the non-QM portfolios while ensuring a quality borrower experience. ese include professional, integrated borrower onboarding communica- tions, online account management and automat- ed payments, customer service representatives dedicated to first-call issue resolution, and a payment app with a smooth user experience. Beyond those lie another set of tools and tactics specifically targeted to non-QM portfo- lios, including unique loan-boarding processes, custom reporting, identification of potential Early Payment Default (EPD), and in-flight process management to ensure timely payments. Because even a single loan default can create a loss for a lender, choosing an experienced, rated non-QM subservicer can minimize risk and end up saving substantial amounts. A non-QM servicer that keeps defaults to a minimum and adheres to regulatory require- ments may also help investors take advantage of the ability to convert certain non-QM loans to Qualified Mortgages (QMs) after three years of seasoning or could assist investors moving loans into non-QM securitization pools. Lenders that originate non-QM loans may also find that using a rated servicing platform with a non-QM specialty can increase the value of their loan sales or securitizations. Investors seem to be paying up for non-QM portfolios that have been serviced or interim serviced by a rated, reputable servicing platform. at's because investors know the platform's specializa- tion and depth of knowledge in default servicing will help reduce EPD and missed payments— two of the most prevalent reasons for non-QM defaults and pricing hits. 1. SPECIALIZATION IS KEY Companies approved to subservice govern- ment and agency home loans must demonstrate a basic level of competence and pass ongoing compliance audits confirming those abilities.