According to the Federal mortgage agency Ginnie Mae, assistance is needed to better monitor nonbank lenders as large banking institutes move away from mortgage loans backed by the FHA. The goal is to bring more staff onboard so new players can be monitored more effectively. As large banks retreat from certain federal mortgage loans, a number of nonbank lenders are moving in.
Large Banking Institutes
Examples of big bank players versus nonbank lenders include:
- Wells Fargo Bank
- JP Morgan Chase Bank
- Freedom Mortgage
- Bank of America
Three of the key players in the nonbanking lender arena include:
- Quicken Loans
- Guild Mortgage Co
- Depot LLC
In the wake of large mortgage related settlements, new banking standards were established. As part of this, lenders must carry more capital and regulators are increasing scrutiny. Because of this, big banks like Wells Fargo and JP Morgan Chase dropped off quickly.
This means for both commercial and residential real estate loans, nonbank lenders surpassed banking lenders during the first half of last year, a trend that continues at 60 percent. While this might be great news for businesses and individuals trying to secure loans, it also means that more policing of resources is needed.
Filling the Void
Nonbank lenders have stepped up to fill the void that large banks left. Now, Ginnie May wants the increased number of nonbank lenders to be vetted, especially those insured by the Federal Housing Administration that has unique programs specifically for borrowers with less-than-perfect credit and low down payment requirements.
According to the US Department of Justice, banks defrauded the government when loans for insurance by the FHA were submitted even though they were ineligible by incorrectly stating incomes or property values. While most banks admitted wrongdoing some insist they received unfair treatment. A perfect example is Bank of America that was required to pay $15.65 billion.
The problem according to officials with Ginnie Mae is that while nonbank lenders are still mandated to follow regulations from both state and federal agencies to include the Consumer Financial Protection Bureau, they are not scrutinized at the same level as banks. As stated by Ted Tozer, president of Ginnie Mae, nonbank lenders are not held to the fire by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation like big banks are.
As explained by Edward Golding, head of the FHA, the agency is not trying to control large banks and nonbank lenders who participate in the FHA program, just ensure borrowers secure the right loan. For that reason, better policing is necessary.
After all, taxpayers are subject to certain risks associated with the increase of nonbank lending. Tozer stated that lenders pooling and servicing mortgages backed by Ginnie Mae have to keep payments flowing to bond holders, even when borrowers go in and out of delinquency. For nonbank lenders, this could create problems with liquidity.
This was confirmed by Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute who said there is increased risk for taxpayers since nonbank lenders may not have the ability to pay penalties in the future if mistakes are found with loans. A spokeswoman from the Justice Department said that policing of Quicken Loans and other nonbank lenders is justified.