The Community Home Lenders Association (CHLA) recently released their latest IMF report. With statistics and analyzes, this report documents the decades-long trend and the current reality: that independent mortgage bankers dominate the mortgage business today.
The facts speak for themselves. Recently, HMDA data for 2020 was released showing that IMBs are now making more than 60% of all new mortgage loans. IMBs give over 90% of VA veteran loans, 90% of FHA loans, and over 70% of GSE loans. Over the past decade, IMB's stake in Ginnie Mae's issue has grown from 12% to 87%.
The reason is simple. After the 2008 real estate crisis, many banks exited the mortgage industry or imposed credit overlays to cap their lending to higher-income borrowers, and IMBs stepped in to fill the void. Unlike banks, which prioritize cross-selling other financial products and meet internal return targets, IMBs make and service loans in both good and bad markets because that's all they do.
Statistics also show that IMBs do better at lending to minorities, lower incomes, and other underserved borrowers. The Greenlining Institute recently found that California non-bank mortgage lenders lend more to women of color and to low-income Black, Asian, and Latin American homebuyers than banks. Urban Institute statistics consistently find that non-banks give a higher percentage of loans to underserved borrowers as measured by metrics such as FICO scores, debt-to-income, and loan-to-value.
CHLA's IMF report also explains in great detail who IMBs are in order to resolve the worrying lack of understanding in Washington for this important market segment. Put simply, IMBs are non-banks who subscribe, make and close mortgage loans with their own funds, then mostly sell them to aggregators or securitize them as Ginnie Mae, Fannie Mae, or Freddie Mac mortgage-backed securities, and sometimes withhold maintenance and sometimes not.
Contrary to the myth shared by many in Washington, IMBs – and small and medium-sized IMBs in particular – pose no real financial or systemic risk to the taxpayer. Unlike banks, which enjoy FDIC-insured deposits, FLHB advances, and cheap access to Federal Reserve funds, IMBs are not withheld by taxpayers. IMBs have “skin in the game” and are putting their own fortune at risk every day. In the 2008 real estate crisis, it was the big players – not the small and medium-sized IMBs – who were bailed out by taxpayers. The next crisis is unlikely to be any different.
The CHLA report also pierced other myths tacitly promoted by market competitors – most notably the false claim that IMBs are not well regulated. The reality is that IMBs have much stronger federal consumer protection than banks. Every mortgage lender working with an IMB must (1) pass the SAFE Act test, (2) pass an independent background exam, (3) complete 20 hours of SAFE Act pre-licensing courses, and (4) 8 hours of continuing education each year.
Notably, all mortgage lenders who work at banks are exempt from all of these consumer requirements by Congress and the CFPB. Most people would be stunned to learn that thousands of registered bank lenders failed the SAFE Act test – and their customers don't even know!
The heart and soul of the IMB industry are the small and medium-sized IMBs that CHLA typically represents. These firms are the real small business owners in the mortgage industry. They are not impersonal mega-lenders / service providers of national banks or non-banks, but rather lenders with a community orientation and a strong commitment to offer their customers personal service.
On the way through the COVID-19 crisis, IMBs, and smaller IMBs in particular, played a vital role in helping distressed borrowers. According to the Urban Institute, IMBs made 80% of refinancing loans that helped homeowners take advantage of lower mortgage rates to help strengthen their personal finances. This refinancing level of IMB was well above its market share of outstanding loans.
And since IMBs primarily serve federal agency loans, they have led the way by offering distressed borrowers a forbearance option, partial claim, or loan modification to keep them in their home.
As the economy recovers from the COVID crisis, the Washington debate inevitably turns to issues such as the right role for the FHA, the way forward in GSE reform and exit from the conservatory, and the right role for the CFPB and mortgage regulations Return in protecting homebuyers and homeowners.
Statistics show that consumers benefit from the competition, choice, and personalized service that IMBs (and smaller IMBs in particular) provide. Therefore, federal mortgage policies should promote equitable access for smaller mortgage lenders, reject redundant new regulations that undermine the strong performance of IMBs in lending to minority and other underserved borrowers, and most importantly, reflect an understanding of who IMBs are and what key role they play this is where our housing and mortgage markets play a role.