21 July 2024

Nonbank Lenders’ On The Rise

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As some banks retreat from the home-loan market, specialized mortgage companies are stepping in to fill the void. In the first half of the year, lenders that aren't banks made almost a quarter of all mortgage loans, the highest level since at least the financial crisis, according to data on the top-30 mortgage originators from industry newsletter Inside Mortgage Finance.

Mortgage lending at big banks such as Wells Fargo  & Co. and J.P. Morgan Chase has dropped more quickly than the rest of the industry in the wake of large mortgage-related legal settlements, new banking standards that require lenders to carry more capital, and increased scrutiny from regulators.

Quicken Loans Inc., the largest mortgage lender outside traditional banks, made $24.3 billion of loans in the first half. Nonbank lenders' rise is good news for some consumers who otherwise might not be able to get a bank loan in the current environment. For banks, this marks a retreat from a business that used to be very profitable but has turned into a legal and financial headache since the crisis.

Mortgage lending has declined across the board, mostly because of a sharp drop in refinances this year. In the first half, lenders made $530 billion in mortgages, 53% less than the first half of 2013. Nonbank lenders haven't been immune—Quicken's mortgage loans for that period were down 51% from a year.

The last time mortgage specialists grabbed a big share of the market was during the housing boom that preceded the crisis. Then, lightly regulated subprime lenders took the lead in originating exotic loans to buyers who ultimately couldn't afford them.

Now the nonbank mortgage leaders say they are catering mainly to safe borrowers and they view the current pullback by big banks as an opportunity to boost market share. Some say the expansion of the mortgage market beyond a handful of big lenders offers consumers more choice and may reduce the damage of a large bank failure.

Some are concerned about the rise of mortgage specialists. A July report from the inspector general for the Federal Housing Finance Agency said Fannie Mae and Freddie Mac face an increased risk from nonbanks defaulting on their obligations. The report also said nonbank-lending growth may present the mortgage-finance giants "with an elevated risk of reputational harm" since some nonbank lenders have been punished for making mortgages that borrowers couldn't afford.

Some nonbanks, including Nationstar Mortgage Holdings Inc., have faced inquiries by regulators such as the New York Department of Financial Services. Regulators say they have received consumer complaints on mortgages that these nonbanks service. A Nationstar spokesman said the company is cooperating with the New York regulator's inquiry, and that the company has helped many distressed owners stay in their homes.

Click here to access the full article on The Wall Street Journal.

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