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It’s official. Mark it down. In the third quarter of 2016, non-bank mortgage lenders originated more than half of the mortgages originated in the US. According to a WSJ report, they represented about 51.4% of the mortgage dollars lent as of the end of September. You’ve come a long way, baby.
With the big bank’s exodus from FHA lending and many pulling back on mortgage lending due to increased regulatory demands and related costs, much of home financing has moved to independent non-bank lenders. This is good but it could be bad. There’s risk in them there hills.
Non-bank lenders now do the bulk of FHA lending. This presents increased risk from the required FHA loan certifications, which scared off the banks and lending to less experienced home buyers in the low to moderate income range. Risks these lenders must safe guard against when originating these loans.
However, based on the cries we hear for the need for more lending to underserved borrowers, those with lower credit scores and down payments, it seems the non-bank lenders may be approaching their lending with a little more caution.
Most mortgages, whether government insured or conventional, currently are going to those borrowers with better credit scores. That’s a good thing. Better borrowers, better loans, better performance, better mortgage market.
So, now the call is for these lenders to take on more risk in expanding their credit box so as to provide financing to more borrowers. That means buyers with lower credit sores, less money and little or no experience in homeownership. How far do the non-bank lenders go? How much risk do they take and how much can they afford?
Lenders need to protect themselves against problems and loan defects that could cause them harm down the road. Things that might lead to loan defaults, that lead to buy backs, indemnifications, fines and loses. They need to carefully review loans being made to ensure exceptional loan quality and legal compliance. Make sure the loans you make don’t come back to cost you.
The larger the loan volume, the more potential for problems! Be proactive in reviewing loans so you’re not reactive in trying to avoid losses.
Congratulations to the non-bank mortgage lenders. It’s good to be out front and move to the head of the class. Just remember, when you do, everyone else can then talk behind your back. Make sure they’re saying good things.
Lend responsibly my friends.
