Nonconforming Mortgages Hit 6% of Originations, Highest Since 2007

Mortgage lenders are reviving nonconforming loans to win business in a stalled housing market, pushing the risky segment to its largest share in nearly two decades.

Nonconforming mortgages reached nearly 6 percent of all home loan originations in 2025, the highest share since the 2008 housing crash, as lenders court self-employed buyers and small investors who cannot qualify under traditional underwriting.

"They're riskier loans by nature," said Cristian deRitis, deputy chief economist at Moody's Analytics. "Those borrowers are more likely to pull back or default on their loans."

Delinquency rates on nonconforming loans originated in 2023 or later have climbed faster than on traditional mortgages, said Court Lake, senior director at Fitch Ratings. The segment's share has roughly doubled over three years, according to real-estate data firm Inside Mortgage Finance.

The loans carry higher interest rates and no government guarantee, leaving lenders exposed if defaults rise. With investors buying about 30 percent of homes last year, a record, the segment's growth tests whether looser standards can be contained without repeating the excesses that preceded the financial crisis.

Lenders such as Rocket Mortgage and LoanDepot are accepting the added risk to boost lending during a slow period. LoanDepot reported a 68 percent increase in nonconforming loan production from 2024 to 2025. "We're committed to responsible lending and to ensuring our customers are educated, informed, and confident in the decisions they make," said Jeff DerGurahian, the company's chief investment officer.

The loans appeal to high earners and small-time investors. Jessica Celia, a branch manager at LoanDepot, said about two-thirds of her customers who choose nonconforming loans are buying rental properties, because borrowing rates can be based on expected rental income. The share of homes bought by investors rose to about 30 percent last year, the highest on record, boosted by buyers with small to medium-size portfolios, according to Cotality.

For some buyers, the difference is substantial. Jan Bruno, a real-estate agent, said her taxable income is less than half of what she earns in a year because of commissions and tax write-offs. A nonconforming loan approved her for up to $1 million, more than she qualified for under a traditional mortgage. "It was a huge difference in buying power," she said.

Delinquency Risk Rises Faster on Newer Loans

The loans evaluate a wider range of income sources rather than strictly tax returns and W-2 forms, creating more uncertainty about repayment. Borrowers can also carry higher debt levels. "If you have a mortgage operation and you have fixed costs you have to cover, there's going to certainly be some pressure to do more deals, or be more creative," said Moody's deRitis.

A Fraction of the Pre-Crisis Peak

Lenders argue the practices will not trigger another financial crisis. Nonconforming loans hit 22 percent of the market in 2007, according to Inside Mortgage Finance, versus nearly 6 percent today. "I'm sure there'll be some investors out there that push the envelope a little bit," said Christy Bunce, president of New American Funding. "But I think most investors have learned the hard way from the meltdown what to do and what not to do."

Analysts are watching loan performance because the rise in nontraditional lending could loosen standards further. Mike Calhoun, president of the Center for Responsible Lending, said the trend reflects who is buying: "The buyers coming in are investors and high-wealth borrowers." If delinquency rates keep climbing faster than on traditional mortgages, lenders may face higher credit costs and tighter capital requirements, even as the segment remains a small slice of the market.

This article is for informational purposes only and does not constitute investment advice. Figures cited reflect data available at publication; readers should verify current rates and policies against official sources.