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Mortgage

Nonbanks dominate FHA-backed mortgages

Is this good or bad for the industry?

Nonbank’s share of Federal Housing Administration-backed mortgages crossed $1 trillion for the first time in November 2016, according to an article in The Wall Street Journal by Annamaria Andriotis.

The news, while positive for nonbanks, is causing some in the industry to question the consequences nonbanks face if the industry undergoes any future stress. 

A study from 2015 by a senior fellow and a researcher at the Mossavar-Rahmani Center for Business and Government at Harvard’s Kennedy School posted that the nonbank market share of agency purchase mortgage originations was growing at an astronomical pace, moving from 27% in mid-2012 to 48% in late 2014.

The article gave an update on the situation, stating that in the first three quarters of 2016, banks accounted for 9% of mortgage dollars originated by the FHA’s top 50 lenders, versus 62% for all of 2010.

From the article:

Ginnie Mae head Ted Tozer, who is leaving his position Friday, has said nonbank lenders may lack the financial wherewithal to withstand future stress in housing. In the worst-case scenario, problems could saddle taxpayers with losses.

“This is the biggest shift in mortgage lending since the savings-and-loans debacle in the 1980s,” Tozer said in a recent interview with The Wall Street Journal. The biggest nonbank FHA lenders include companies such as Quicken Loans Inc., Freedom Mortgage Corp. and Guild Mortgage Co.

However, not everyone agrees with Tozer.

From the article:

Mortgage bankers say Tozer’s concerns, while well meaning, are overblown. “It would take a significant rise in delinquencies to get to the place he’s talking about,” said Pete Mills, senior vice president of residential policy and member engagement at the Mortgage Bankers Association.

Tozer’s “concerns are valid in general because banks do have deeper pockets than nonbanks,” said David Battany, executive vice president of capital markets at Guild Mortgage. But he added, “We view that we are adequately capitalized to make advances in high-default scenarios.”

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