More Home Buyers Bypass Banks for Loans
Home buyers increasingly are turning to independent mortgage companies for their loans, not traditional banks.
According to data from the Federal Reserve, in 2014, nondepository independent mortgage companies originated 47 percent of completed home-purchase loans and 42 percent of refinance loans – up from 43 percent and 31 percent, respectively, from 2013. That also represents the largest share of the mortgage market held by non-banks since 1995.
Nonbank lenders include companies like Quicken Loans (which is now the second largest retail mortgage lender nationwide, behind Wells Fargo) and Loan Depot, and Finance of America Holdings. Blackstone Group’s Finance of America Holdings is expected to soon become one of the nation’s largest nonbank lenders after recently acquiring Gateway Funding Diversified Mortgage Services, Pinnacle Capital Mortgage, and some assets and operations of PMAC Lending Services Inc.
The largest majority of nonbank mortgage volume still comes from conforming mortgages, backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration. However, nonbank lenders are also increasing trying to increase their market share of jumbo loans (mortgages that are above the conforming loan limits of $417,000 in most areas and $625,500 in high-priced markets), Guy Cecala, CEO and publisher of Inside Mortgage Finance, told The Wall Street Journal.
For example, Quicken Loans is allowing some jumbo mortgage borrowers with consistent income documentation to complete their transaction fully online. “In many cases, you don’t have to talk to a loan officer,” says Bob Walters, chief economist for Quicken Loans.
Some nonbank lenders are touting their speed as an advantage over traditional banks. For instance, company officials with Movement Mortgage, which operates in 42 sates and originated $4.24 billion in mortgages in 2014, tell conforming loan borrowers that they are able to close mortgages in seven business days and jumbo borrowers in only a few days more (even with new mortgage disclosure rules that took effect last month).
While nonbank lending is catching on, bank officials say they hold one big advantage: They tend to be able to offer lower rates and closing costs to customers based on length of account history and amount of holdings.
Source: “Home-Loan Borrowers Bypass the Banks,” The Wall Street Journal (Nov. 4, 2015)