F
ollowing the financial crisis of 2008-10, nonbank mortgage companies have been very crucial in maintaining direct access to mortgage credit. According to the Brookings Institute, nonbank lenders originated more than half of all mortgages in 2016, which is 20 percent more than the share of their originations in 2007. Part of the reason for this growth is the fact that banks withdrew from giving mortgages to people with low credit scores following the Financial Crisis, but nonbank mortgage companies felt the need to take advantage of the technological innovations and trends in mortgage lending further-reaching even the people banks could not. Even though this was a positive shift, reaching more people and helping them become homeowners, this growth poses risks to borrowers, the communitie, and even the government (both state and federal governments). Small nonbank mortgage issuers operate on the principle of short-term credit to finance their operations. This credit can become expensive and when the financial markets tighten up, this credit will definitely dry up. On the other hand, some non-bank lenders depend on mortgage refinancing, and in most cases, this revenue will diminish as the interest rate rises. In addition, what you will realize about the nonbank mortgage servicers is that they tend to service mortgages that have a higher rate of default which means, they are exposed to greater risk of loss should the prices of the housing decline. Nonbank mortgage servicers, mostly originating the mortgages insured by FHA or guaranteed by the Department of Veterans Affairs are prone to these issues.
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THE PLIGHT OF SMALL INDEPENDENT MORTGAGE ISSUERS THE POWER IS NOW MAGAZINE | SEPTEMBER 2021
