Borrowers find refuge in nonbank mortgage loans

But concerns persist over nonbank risk

Nonbank lending is growing as homebuyers rejected by big banks turn toward non-QM loan options. 

"Approximately 20% of the loans we close every month are referred by banks that won't close the loan for one reason or another," said Michael Stowers, branch manager of the San Diego imortgage office.

As HousingWire reported recently, nonbanks like imortgage and RPM Mortgage have started offering non-QM loans that are tailored to fit the needs of distressed homebuyers who have higher debt burdens.

Banks are being cautious to avoid repurchase losses, and where big banks are restrained, nonbanks are stepping up, taking on the bigger risks of lending to buyers with less-than-pristine credit histories.

The Federal Housing Finance Agency’s Office of the Inspector General reported that of the number of loans Fannie and Freddie purchased in the first three quarters of 2013, 46.6% were from nonbank mortgage companies, up from 32.2% in 2011.

However, concerns over nonbank lending continue to grow, especially as the nation's largest nonbank, Ocwen Financial, is under continued scrutiny by the New York Department of Financial Services.

The FHFA expressed its concerns as well, stating that nonbank lending increases counterparty credit risks, operational risks and reputational risks.

Nevertheless, for some borrowers the nonbanks are their best or only option to getting a mortgage.

"We've seen all kinds of unfortunate scenarios including clients stuck in motels because the loan to buy their home fell through," says Stowers. 

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