Issuing slews of mortgages-without being a bank
More home buyers enter the market this spring, but big banks are continuing their retreat from mortgage lending.
That is opening the door ever wider for independent, nonbank lenders. Both volume and profit at these lenders are up from a year ago, according to the Mortgage Bankers Association, but their share of all lending is where the numbers are really soaring.
Nonbank lending rose to 37.5 percent of the market during 2014, up from 14 percent in 2011, according to publication Inside Mortgage Finance.
"That was attributable to a combination of nonbanks being more aggressive, both in terms of rates and underwriting, and large banks pulling back slightly in the conforming markets," Editor Guy Cecala said.
The leaders in nonbank growth were names like Quicken and Penny Mac as well as other smaller nonbanks, like Charlotte, North Carolina-based Movement Mortgage.
"Our building actually sits in the shadow of a Bank of America headquarters building, and we've been able to gain number one purchase market share in that city inside of five years by offering great service to homeowners," said Casey Crawford, CEO of Movement Mortgage, which he founded in 2007.
Movement's angle is a promise to borrowers that it can close a loan in eight business days, the fastest the federal government allows. It fulfills that promise by approving borrowers before they even apply for a loan.
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"The market is extremely tight, unbelievably tight right now, and many finance buyers are competing with cash buyers," Crawford noted. "If you want to be able to compete with cash buyers, you have to have surety of close, and sellers want to know that you've been pre-approved up front."
The promise worked for Shaya and Yehudis Kohn in Pikesville, Maryland. They already owned a home, but needed to make a fast offer on a move-up home that they knew would sell quickly.
"I knew that if this house went on the market there was no way I would ever get it, so I bought it before it even went on the market," said Shaya Kohn, who was able to secure a loan through Movement immediately.
Like smaller banks, nonbank lenders can offer more personal service. For today's crash-strapped, sensitive borrowers, that, too, is a selling point.
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"They literally held our hands every step of the way, helped us over every bump along the way," said Yehudis Kohn.
Nonbank lenders are gaining share rapidly in the mortgage purchase market, but big banks are still doing a swift business in loan refinances. While the biggest lenders, Wells Fargo (NYSE: WFC) and JP Morgan (NYSE: JPM), reported huge drops in mortgage originations at the end of last year, that was primarily due to higher interest rates that caused refinance volume to plummet.
This is not to say that they haven't lost purchase mortgage share as well, as they tend to be more conservative in underwriting, given the billions of dollars they had to pay back when millions of their loans went bad during the housing crash. Nonbank lenders have been more aggressive with rates and personal service. The last time nonbanks grew their share was during the housing boom, in the category of subprime lending. That is not the case now.
"We don't want to go back to the subprime days, when we were extending credit to the wrong folks, but we do want to make sure we're extending credit to those borrowers who do have the ability and capacity to repay the loans but may just not have traditionally documentable income," said Crawford, who claims Movement's default rate is lower than any of its peers.
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Nonbank lenders still sell the vast majority of their loans to Fannie Mae and Freddie Mac , so they must comply with their underwriting and capital standards. Fannie and Freddie are equally concerned with the nonbanks' ability to service the loans-as having enough capital, employees and phone lines, to provide good customer service.
"We are happy to serve a wide spectrum of lender partners, from the largest depository institutions, to regional and community banks, to nonbank lenders. Nonbank lenders are an important part of the capacity mix as the market develops," said Andrew Wilson, a Fannie Mae spokesman.
Nonbank lenders are still hoping for a return of private capital to the mortgage market, but that has still been nearly nonexistent. The home loan market is still being characterized as "tight," for better or worse.
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