Did you know that 4 out of 5 of the largest mortgage lenders are nonbanks, NOT subject to bank regulator scrutiny?
Todays WP:
"The new players
As banks have offered fewer home loans, companies such as Quicken Loans and Guaranteed Rate - "non-bank lenders" that are not subject to the same strict oversight facing banks - have stepped in to fill some of the gaps. In 2014, four of the top five mortgage lenders were banks; in 2022, only Wells Fargo remained in the group, according to the mortgage data analysis firm Recursion.
But this new crop of lenders is at best an imperfect substitute for banks, housing finance experts say.
"A borrower in a high-cost area with limited cash for a down payment would probably still find it difficult to secure credit from a non-bank lender," said Michael Reher, an assistant professor at the University of California at San Diego who has studied the phenomenon. He also experienced it firsthand when he needed to finance 90 percent of his home purchase and could land a mortgage only from a local bank.
The reason, Reher said, is that banks have greater leeway to keep mortgages with smaller down payments on their balance sheets, since they have a generally stable cushion of funding from their deposits. By contrast, the newer mortgage companies aren't banks and don't have deposits, so they need to sell off a greater portion of the loans they make to Fannie Mae and Freddie Mac, the government-backed mortgage giants that help pump liquidity into the housing market. In turn, Fannie and Freddie limit the sorts of loans they will buy to reduce their exposure to risk.
The proposed capital rule would not apply directly to non-bank lenders. That disparate treatment could end up costing the neediest borrowers, some housing finance experts say. Minority home buyers tend to pay more than others in closing costs when buying a home, an expense that can cost up to 1 percent of their loan, recent research has shown. And the fewer lenders available, the more expensive these costs will be on account of the diminished competition, Reher said.
For Caldwell, every additional expense weighs against buying a house, a move she already needs to stretch to afford. So the Cincinnati resident has padded her savings for a down payment to $3,000, paid off credit cards to improve her credit score, expanded her search area - and adjusted her expectations.
Caldwell said she originally told her Realtor she wanted to find a three-bedroom house and could spend $1,500 a month on a mortgage. He countered she had to find a way to pay $1,800, and that number has since climbed.
Then again, if she extends the lease on her two-bedroom apartment - where her 11-year-old son is sharing a bedroom with his 22-year-old brother - her rent will increase by $70 a month, to nearly $1,400.
"To hear costs just keep going up is really disheartening," she said. "Where do they want people to live?"
