Well, much of the regulation doesn’t apply to non-bank lenders, which typically originate mortgages and quickly sell them onward to be packaged into securities for investors. These “shadow banks” don’t take deposits, don’t have much capital, and are usually overseen by state banking authorities, which tend to be less stringent. They are also considerably more aggressive than their bank counterparts.
By operating with less capital, they can reap very large returns in good times. In bad times, however, they might not have the capacity to withstand losses or deal with the servicing burden created by widespread delinquencies. As a result, a large swathe of the country’s lending and servicing system could implode when the next crisis hits.
The shift has been even more extreme in mortgage servicing. Non-banks now service about 51 percent of all loans packaged into new Freddie Mac securities, according to mortgage analytics firm Recursion Co. That’s more than double the share of just five years ago. For securitized FHA loans, the share stands at a staggering 83 percent. Again, banks are leaving the business: Last year, CitiMortgage announced it would exit by the end of this year, transferring the servicing rights for about 780,000 mortgages.
The average FICO score at origination stood at 730 at the end of 2017, down from 750 five years earlier. For loans guaranteed by the Federal Housing Administration -- an area where the non-banks’ share is greatest -- the average FICO score has fallen to 680.
And an article from last year mentioned about the rise of non-bank mortgage lenders such as Quicken Loans: https://www.washingtonpost.com/realestate/the-mortgage-market-is-now-dominated-by-nonbank-lenders/2017/02/22/9c6bf5fc-d1f5-11e6-a783-cd3fa950f2fd_story.html?utm_term=.6b6794e2b5a0
In 2011, 50 percent of all new mortgage money was loaned by the three biggest banks in the United States: JPMorgan Chase, Bank of America and Wells Fargo. But by September 2016, the share of loans by these three big banks dropped to 21 percent.
At the same time, six of the top 10 largest lenders by volume were non-banks, such as Quicken Loans, loanDepot and PHH Mortgage, compared with just two of the top 10 in 2011.
“Now banks only approve ‘perfect’ loans, not ‘good-enough’ loans,” Taylor says. “This created an opportunity for non-banks that focus entirely on mortgages and are less regulated than big banks.”
Although there was this paragraph (and rest of the article) that sorta rebutted the article's initial warnings:
“This time around, the non-bank lenders are not being reckless,” Sharga says. “Some offer loans to borrowers with lower FICO scores, but they are still not making risky loans. Consumers are benefiting from non-banks because they offer more opportunities to borrowers who are not perfect.”
“Higher interest rates will cause funding costs to rise for non-banks, since they have to borrow money from capital markets to make their loans,” says Navigant Consulting’s Noring. “That could mean a rebalancing among lenders because banks fund their loans with deposits.”
TLDR: Traditional banks are unwilling to take on the same risks as pre-2007, and some even left the business. Meanwhile non-bank mortgage lenders are expanding into the high risk mortgage business, and instead of using banking deposits to back the mortgages, they're borrowing money themselves to make the mortgages.
Submitted February 24, 2018 at 12:43PM by COMPUTER1313 http://ift.tt/2HFCK5z
