Nonbank mortgage lenders are known for their ability to streamline the loan process so borrowers can get in and out quickly. Quicken, for example, was among the first to make it possible for homebuyers to answer questions and complete all the necessary paperwork online.

After the 2008 financial crisis, many banks eliminated or minimised their involvement in

mortgage lending. That left a void for mortgage lenders and a phoenix-like rise for nonbanks. For more information about the non bank mortgage, click here.

Lower Interest Rates

Nonbanks can offer lower interest rates on mortgage loans because they don’t have to adhere to the same regulatory standards as banks. They can also process loan applications faster and have less restrictive criteria than bank lenders.

The lower credit requirements allow nonbank mortgage lenders to serve borrowers often rejected by traditional institutions due to a lack of ‘tick all the boxes’ or a squeaky-clean credit score. These include self-employed people, first-time buyers and property investors. Nonbank lenders may also specialise in offering government-backed mortgage loans such as those issued by the Federal Housing Administration and Department of Veterans Affairs.

While many nonbank lenders are well-established and trustworthy, conducting thorough research, reading reviews, and selecting reputable providers is essential. Most reputable nonbank mortgage lenders follow industry regulations, prioritise transparent practices and focus on building solid relationships with their clients. However, they remain dependent on short-term credit, and their business models are vulnerable to a significant financial market shock.

Lower Setup and Ongoing Fees

Nonbank mortgage lenders have less restrictive financial criteria, making accessing loans easier for customers with lower credit scores. Their fewer rigid requirements often make it easier for borrowers to refinance their mortgages and can help them save money by reducing their interest rates. For more information about the non bank mortgage, click here.

Nonbank mortgage lenders are also generally less reliant on debt securities, so they can be more flexible with how they structure their lending packages. This can also allow them to offer more competitive deals than the banks.

As the market has shifted since the 2008 crash, nonbank lenders have come back in force and, by 2016, had surpassed banks in mortgage origination. The phoenix-like rise of nonbank mortgage lenders has been made possible by the unbundling of the securitisation, funding, servicing, and investing of mortgages. This has allowed them to compete with banks in markets previously dominated by the government-sponsored enterprises Fannie Mae and Freddie Mac.

Fewer Rules

Generally, nonbank mortgage lenders have fewer rules associated with them than banks. This results from their smaller organisations having less bureaucracy and a remarkable ability to disseminate information quickly to borrowers. Their organisational structure also allows relationship managers to get closer to credit committee decisions and the process of delivering commitment letters.

However, despite this leaner structure, it is essential to remember that nonbank lenders must comply with intensive legal and industry codes. This includes ASIC regulations, Privacy laws and the ePayments code.

This means that a lender that does not perform well can face the same penalties as a bank. This can include a loss of reputation and the cost and time of restructuring or exiting the mortgage market altogether. This is why evaluating nonbank mortgage lenders on their individual merits is essential rather than simply relying on the perception of a lesser degree of risk. For more information about the non bank mortgage, click here.

More Access

Today, nonbank mortgage lenders like Quicken Loans originate 42 per cent of all home loans in the nation. Nonbanks also issue most mortgages insured by the Federal Housing Administration (FHA), allowing first-time homebuyers and those with damaged credit to obtain homeownership. These mortgages require a smaller downpayment and can be financed with lower credit scores. In addition, they must carry private mortgage insurance, which increases the monthly cost of the mortgage.

The unbundling of the originating, servicing, funding, and investing activities from banks to nonbanks has led to rapid growth for mortgage lenders who offer consumer financing services, such as mortgages and debt refinancing. However, many of these firms are less transparent than their bank peers. They may use proprietary data to identify eligible borrowers, raising concerns that they will exacerbate financial inequalities in some communities. Moreover, many use wholesale funding, which is more sensitive to interest rate fluctuations. As a result, they are more susceptible to earnings pressure, industry overcapacity and periodic regulatory scrutiny.