For the past six years, nonbank lenders have dominated the mortgage market, with strict regulations keeping most big banks out of the game. Now, however, the potential relaxing of those regulations could change the playing field once more.
From around 2010 until today, nonbank lenders like Sanjiv Das’s Caliber Home Loans and Jay Farmer’s Quicken Loans have steadily risen to the top, going from owning 10 percent of the market to owning nearly half. Whereas big banks like JPMorgan, Bank of America, and Citibank have had to weather intense scrutiny in the aftermath of the 2008 financial crisis, leading them to bow out of most of the mortgage game as too risky an investment, nonbank lenders have been steadily able to pick up the slack.
However, with President Trump now talking about a series of deregulatory moves, particularly in the banking sector, it’s quite possible that banks—both big banks and smaller regional ones—will return to the mortgage fray.
Once upon a time, banks balked at FHA (Federal Housing Administration) loans, or government-insured lending, due to the increased risk factor (FHA loans require only a 3.5 percent down payment). This left room for nonbank lenders like Caliber to offer services to borrowers with less-than-perfect credit.
Should banks manage to get out from under the tight restrictions they’ve been dealing with, it’s possible that their participation in the mortgage industry will rise again. But Caliber’s Das doesn’t see this as a big problem for nonbank lenders: “The independent lender will continue down the path of continuing to gain market share because they are substantially more nimble and more focused,” he concluded.
Consumers, for their part, don’t tend to care about the type of lending institution they use, so long as the lender is reliable. “For consumers, it doesn’t really matter whether you get your loan through a bank or a nonbank,” said Paul Noring, a managing director at Navigant Consulting in Washington. “The impact is bigger on the housing market overall because without the nonbanks we would be even further behind where we should be in terms of the number of transactions.”
After the financial crisis, the mortgage industry shifted fits focus from risk management to zero tolerance in an effort to clean up the financial mistakes that damaged the economy. While lenders have ultimately adapted as best they could, they weren’t ready for the level of changes that would be required of them, which is perhaps part of the reason for the housing market downturn still being experienced today.
But with a new administration comes a new regulatory and economic environment, which could mean big changes for the mortgage industry. Whether or not big banks reenter the world of mortgages, it’s clear that nonbank lenders will continue to offer a diverse range of services. And it might just be enough to keep them afloat when and if the likes of JPMorgan reenter the fray.