With a few players in the mortgage space having made unfortunate headlines in the last couple of months, some are worried that it may make borrowers gun shy about independent mortgage bankers and nonbank firms.
These stories come right at the time when credit boxes are being opened and lending standards are loosening a bit, which those in the mortgage finance and housing industry hope will unleash some of the pent-up demand among first-time homebuyers and those on the margins.
But it’s critical for those in and out of the industry to remember that bad news always makes the headlines, and the overwhelming majority of independent mortgage bankers are extremely well managed, says David Stevens, president and CEO of the Mortgage Bankers Association.
“This is an important time where we make certain that people know that although they may read about certain institutions in the mortgage finance industry who have made mistakes that we don’t throw the baby out with the bath water,” Stevens tells HousingWire. “Just as certain banks made headlines in the recession, the vast majority did their business in a safe and sound manner.”
Independent mortgage banks, nonbanks and community banks are playing a greatly increased role in mortgage financing, Stevens says, and the fact is the independent mortgage bankers operate under as much or perhaps more scrutiny than any other banking institution.
Banks are retreating from mortgage lending. A recent report from Ginnie Mae, its Strategic Views, showed this.
“The rising prominence of non-depository firms, and the accompanying trend toward specialization and networked firms, represents a natural market response to prevailing factors, such as the pressures on legacy bank servicers. Though there are legitimate concerns about accompanying risks, there is also value in the diversity and innovation that such firms can bring,” the report states. “Ginnie Mae is supportive of a responsible evolution of the residential finance marketplace and is willing to explore making appropriate modifications to its MBS program and securitization platform to reflect such evolution.”
Stevens also noted the additional regulatory framework independent mortgage bankers operate under.
“If you’re an independent mortgage originator, you have state supervision in every state you do business with, you have state examinations, CFPB examinations, but also nonbank independent mortgage bankers have to submit to the national licensing and testing requirement under the SAFE Mortgage Licensing Act that others don’t.”
Independent mortgage banks heavily dominate the purchase mortgage market, Stevens noted. Their share of that segment is far larger than their overall size in the market. Their capital requirements are strict, and owners put their own personal capital on the line in a way that larger institution don’t.
“If you’re an independent mortgage banker, you’re personally guaranteeing mortgages. That’s your own wealth, not shareholder wealth,” Stevens says. “That’s a very strong incentive. And these are a monoline business model they operate in. It’s all they do. You’re an expert on mortgage banking and you don’t have anything else you’re focused on or fall back on.”