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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