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Non Bank Lender Growth Cautions Federal Policy Maker


Non-bank lenders continue to emerge as dominate players in the mortgage lending industry almost doubling their market position from 2012 to 2014.  These non-bank lenders are being eyed by policymakers, causing Government Sponsored Enterprises (GSE) such as Freddie Mac and Fannie Mae to modify their non-bank standards in May.   

The attraction to non-bank lenders for consumers, according to a June 1 paper published by Marshall Lux and Robert Greene from the Harvard Kennedy Massavar-Rahmani Center for Business and Government is largely due to granting mortgages to lower FICO score applicants.   According to the study, in the last quarter of 2013, the median FICO score of FHA insured borrowers was 675 at non-banks compared to the 685 at banks.  Compared to the last quarter of 2014, non-bank lenders loaned to borrowers with a 667 score while traditional lenders loaned to FICO scores of 682. 

Technology plays a vital role in the growth of non-bank lending.  Borrowers are attracted to on-line applications, receiving quick mortgage approvals and enjoy highly rated customer experiences.  Non-banks costs the consumer less and the non-bank business structure engages regulators.   No wonder the non-bank mortgage business is booming!  Today, even if your FICO score is under 700, whether you are searching for a golf communities in Southwest Florida or beachfront condos in Southwest Florida, non-bank lenders just might be able to help.  Call Florida Home Realty for list of non-bank lenders that can help you.  

The FHA insuring these loans is what has driven the Fed to review the insurance requirements.   Astonishing statistics for first part of 2015 indicate over 60% of FHA mortgage originations were by non-bank entities to borrowers of higher risk compared to 30% in 2012.  Low income, low down payments contribute to risk of default and can severely contribute to housing market downturns.  Jack Guttentag, Professor at the Wharton School of Business noted that because FHA mortgage insurance premiums are not linked to credit scores, low-income borrowers are accepting less favorable terms, and as long as FHA insurance can be secured, the loans are made. 

There is no doubt that non-bank companies present a threat to the GSE’s.   As technology continues to affect the mortgage industry and borrowers are getting mortgages under the non-bank business model, adjustments will continue.   Modifying FHA insurance guidelines to level the playing field between non-banks and traditional lenders is just the beginning.  Non-traditional bank financing can help you purchase in all of Southwest Florida including luxury properties in Naples, Marco Island, Bonita Springs and Estero.



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