Nonbanks Continue To Take Over The Lending Market

Considerations for Receiving a Mortgage from a Non-Bank Lender

Nonbanks Continue To Take Over The Lending Market
March 2, 2016

In 2007, banks were responsible for 74 percent of all mortgages made to new homeowners, but following the housing crises of the late 2000s, that number has greatly decreased.

In 2014, banks made only 52 percent of mortgages. The rest of those mortgages were made by entities classified as nonbanks. These companies, sometimes also referred to as mortgage bankers, have more freedom than regular banks, but also more disadvantages.

Banks continue to pay for the mortgage crisis

One reason many banks have stopped lending as much money to homebuyers is because they are still recovering from the losses they took when the housing market crashed. In 2008, many felt that they were too large to fail, but their lack of liquidity led to just that. Today, many are still paying off losses incurred during that period. Others have pulled back on mortgage lending, because they find it difficult to work under the new regulations that went into effect to prevent another market crash.

Why nonbanks have stepped up

Nonbanks do have to comply with the same regulations banks find too harsh, which means potential homebuyers can approach these lenders without worrying that they are receiving a mortgage from a non-reputable company.

However, the risk that both nonbanks and borrowers do need to realize is that nonbanks do not have the same types of financial resources that banks do. If another market crash were to occur, nonbanks do not have the option of receiving emergency funds from the Federal Reserve. Banks also have the protection of the Federal Deposit Insurance Corporation, which protects all deposits. If a nonbank were to be short on funds, their only option is to take out a loan from a bank. With most banks still wary of mortgages, it could be very difficult for a nonbank to receive any line of credit. While nonbanks are growing now, their future is always in question.

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Steffanie | 03.02.16 @ 15:49
We have checked into non-banks when we were mortgaging our house. They really do have some added benefits, even though we ended up going with a traditional bank.
Erin | 03.02.16 @ 15:50
Good information to have. I guess everyone has to weigh the risks versus the benefits and see which direction they want to go. You kind of just have to hope for the best with whatever you choose.
Elaine | 03.02.16 @ 15:50
Someone is always having to pay for something. However, I would say these big banks or nons, will always pass down the load to fall on the little people.
Carla | 03.02.16 @ 15:51
We went through a non bank lender. I'm really not surprised that they are becoming more popular now since the crisis.
Sarah | 03.02.16 @ 15:52
Having more options is a good thing but of course there are problems and risks and potential issues no matter which way we turn. No rest for the weary
gracie | 03.02.16 @ 15:53
I am glad there are several options for getting a home financed but I don't have much faith in the economy holding strongly so after checking into them we are still sticking with traditional bank loans
Brittany | 03.02.16 @ 15:53
I have a non-bank and I honestly prefer it over the usual. It makes things a lot simpler and has many more benefits.
irene | 03.02.16 @ 15:53
Probably because people don't have as much trust in banks since the recession
Ron | 03.02.16 @ 15:54
Given the economic situation, I really think community banking through smaller credit unions is a prudent and practical means of borrowing and lending. The smaller institutions work on a more personal level as both the lender and borrower have a deeper vested interest in positive outcomes. Of course, there may well be higher scrutiny for borrowing, but those places will work with you to greater lengths than a big lender.
$commenter.renderDisplayableName() | 11.29.20 @ 20:12