It is no surprise to anyone in the lending industry that the number of bank originated mortgages has decreased. Part of this is due to the economic crash of 2008 that had such a big impact on the housing market, but the fallout from the 2010 Dodd-Frank Act also had important ramifications for lenders.
With many bank lenders pulling themselves out of the market or significantly reducing the number of loans they had available, non-bank lenders have arrived on the scene in relatively large numbers. In fact, recent research from Harvard University indicates that these non-bank lenders are providing nearly half of the funds for home purchases today. In late 2014, these non-bank lenders garnered 40 percent of the market, compared with just 27 percent in 2012.
Although these non-bank lenders have certainly made available opportunities for individuals who would otherwise not be able to purchase a home, this shifting nature of the lending industry has called into question whether non-bank lenders in such high numbers is a good thing overall. It is important to make a distinction that the lack of lending by banks is not tied to reduce consumer demand, but instead the regulatory burdens that made it difficult or less profitable to provide residential lending.
According to experts in the field, the fallout from these regulations is unfortunate, because the government actions were taken to help prevent a housing crisis, but they were never intended to force lenders to lend any less.
These regulations, coupled with financial penalties that many banks have suffered in the aftermath of the 2008 crash, have made it possible for alternative lenders to make such a splash. While it might seem like a good thing that more borrowers are able to purchase a home, analysis of the data from Harvard University study indicate that the non-bank lending tends to trend towards providing support to higher risk borrowers. This could become problematic in the event of another economic recession or decline.
The news is not all bad, though. According to MBA president David H. Stevens, the non-bank lenders have helped to cushion the blow of what would otherwise be a very slow recovery from the 2008 crash.
The benefits of these non-bank lenders extends beyond just making more loans available, though. The non-bank lenders coming on the scene tend to focus specifically on providing mortgages, which can be beneficial as it attracts experts to work in these institutions. Banks, on the other hand, tend to focus on providing a wide range of services, which could mean that the consumer is not always getting a specialist when he or she is in the market for a home loan. The shift to non-bank lenders is also made more room in the market for smaller community banks, many of whom lost out on big lending opportunities because the competition was too fierce in the past.
Prev
