By Selina Stoller, Summit Consumer Receivables Acquisitions, LLC
Affordable housing advocates are worried by newly-released federal data from the Consumer Financial Protection Bureau which shows people with low-and moderate-incomes make up only 26.3 percent of borrowers in 2017, down from 36.6 percent in 2009.
According to CNN Money, part of the variance is due to federal rules put in place to crack down on the subprime lending tactics that helped bring on the financial crisis. Another factor – modest income earners being locked out of the housing market due to skyrocketing housing costs.
The data reveals another profound shift – big banks moving away from mortgage lending and independent mortgage companies (“non-banks”) moving in.
These “non-banks” are a catchall term for financial institutions that do not take deposits. For example, non-bank mortgage lenders just do mortgage lending. Banks do not have a high profit-margin on mortgages, making many banks de-emphasize their mortgage lending. During times of low-interest rates and higher regulatory costs, traditional banks have the option of moving into more profitable ventures like credit cards.
Meanwhile, non-banks have focused on volume – especially through refinances – and now originate 56 percent of all home loans according to the CFPB data. The biggest home lender is in the country is Quicken Loans, not a bank. Wells Fargo is the nearest competitor.
As banks do less mortgage business, they are also moving away from lower-income home buyers who often apply through the more forgiving Federal Housing Administration loan programs. Only 15 percent of the new mortgage borrowers at the nations’ three largest banks were low-income in 2017 compared to 29 percent for the three largest non-banks.
Economists have also raised concerns about the large volume of lending by non-banks. Many of these firms are relatively new and non-public, making it difficult to assess their level of risk and their capacity to absorb losses if the housing market were to turn sour.
- 16 May, 2018
- Josh Smith