Not so distant past
In case you’ve forgotten, in 2008 the country suffered a major financial crisis. This crisis came by the hands of mortgage lending and extravagantly risky investment bankers and brokers. The stock market went kaput, everyone’s IRAs were cut in half – the crisis affected just about everyone.
Fast forward nearly a decade and private lenders want riskier mortgage brokers back.
Brokers come back
Since the 2008 crisis, the number of regulations have skyrocketed. Mortgage brokers used to be the man in the middle talking between the lenders and the borrowers, but the newer financial regulations have made them all but extinct.
It doesn’t help that big banks with national sales teams refuse to use the middlemen anymore due to the fact that it’s harder to police loan quality from third-party contractors.
Now, a solid nine years after the crisis, the smaller and independent money lenders are asking for those brokers to come back.
The fact that the middlemen did not check mortgage applications for accuracy (see: fraud) and let loan quality evaporate is what makes small and midsize independent lenders want them back.
Non-bank lenders typically cater to riskier borrowers.
Those lenders say they need brokers back to spread out across the country and be the middleman for mortgages for people with less than ideal credit scores, or who can’t prove their income through a typical tax return.
Usually a mortgage broker will survey lenders for the best loan to fit the customer. Think Kayak for loans. Once there is a decision, the lender funds the borrower’s loan and off ya go.
Pre-2008, mortgage brokers served banks and independent lenders.
However, today most brokers work for non-bank lenders who make up a majority of the mortgage market.
So much of a majority that in the first quarter, those non-bank lenders accounted for about half the mortgages originated in the U.S.
Lenders say there is an untapped market among borrowers with good credit scores.
Borrowers such as self-employed workers who don’t have proper income documentation, for example.
Lenders also believe that there is an untapped market for responsibly-made loans to borrowers with credit problems that have had bankruptcies in the past or had to sell their home for less than it was worth.
If the lenders are successful in recruiting mortgage brokers, they believe the market potential for both types of loans could reach $200 billion annually.