Why Independent Mortgage Banks Don’t Need More Government Regulation

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The Community Housing Lenders Association (CHLA) recently released its latest IMB report… This statistics and analysis report documents a decade-long trend and current reality: Independent mortgage bankers now dominate the mortgage business.

The facts speak for themselves. HMDA data for 2020 was recently released showing IMB currently creates over 60% of all new mortgage loans. IMB creates over 90% of VA loans for veterans, 90% of FHA loans and over 70% of GSE loans. Over the past decade, IMB’s share in Ginnie Mae has grown sharply from 12% to 87%.

The reason is simple. In the aftermath of the 2008 housing crisis, many banks withdrew from the mortgage industry or introduced overhead loans to limit their lending to higher-income borrowers, and IMB stepped in to fill the gap. Unlike banks, which prioritize cross-selling other financial products and meeting internal rate of return targets, IMB lends and services in both good and bad markets because that’s all they do.

Statistics also show that IMBs are better at lending to minorities, lower income and other underserved borrowers. The Greenlining Institute recently found that non-bank mortgage lenders in California provide more loans than banks to women of color and low-income black, Asian and Hispanic homebuyers. Urban Institute statistics consistently find that nonbanks provide higher lending rates to underserved borrowers, as measured by metrics such as FICO scores, debt-to-income ratios, and loan-to-value ratios.

The CHLA IMB report also explains in great detail who the IMBs are to address a worrying misunderstanding in Washington of this important market segment. Simply put, IMBs are non-bank firms that guarantee, create and close mortgages with their own funds, and then preferentially sell those loans to aggregators or securitize them as Ginnie Mae, Fannie Mae, or Freddie Mac mortgage-backed securities, sometimes retaining service. and sometimes not.

Contrary to the myth spread by many in Washington, IMBs – and especially small and medium-sized IMBs – do not carry any real financial risk to taxpayers or systemic risk. Unlike banks, which enjoy FDIC-insured deposits, FLHB advances, and cheap access to federal reserve funds, IMB does not receive taxpayer support. IMBs have the skin in the game, putting their own fortune at risk on a daily basis. During the 2008 housing crisis, taxpayers bailed out big market players, not small and medium-sized IMBs. The next crisis will probably not be an exception.

The CHLA report also debunked other myths that were quietly encouraged by market competitors, such as the false claim that the IMB is not properly regulated. The reality is that IMBs have much stronger federal consumer protection than banks. Every mortgage source employed by IMB must (1) pass a Security Law test, (2) complete an independent background check, (3) complete a 20-hour pre-licensed Security Law course, and (4) complete an 8-hour Course of Study. continuing education every year.

Notably, all mortgage companies that operate in banks are exempted by Congress and the CFPB fromeverythingthese consumer requirements. Most people would be stunned to find out that thousands of registered lenders have failed the SECURITY LAW test and their clients don’t even know it!

The heart and soul of the IMB industry is the small to medium size IMBs that CHLA usually represent. These firms are true small businesses in the mortgage industry. They are not impersonal national banks or non-bank mega-lenders / service providers, but community-oriented lenders firmly committed to providing personalized service to their clients.

As our country weathered the COVID-19 crisis, IMBs, and especially small IMBs, have played a critical role in helping problem borrowers. According to the Urban Institute, IMB provided 80% of its refinancing loans, which helped homeowners take advantage of lower mortgage rates to bolster their personal finances. This refinancing rate for IMB was well above their market share of outstanding loans.

And since IMB mainly serves loans from federal agencies, they were the first to offer problem borrowers the option of abstaining, demanding or modifying the loan in order to leave them at home.

As the economy recovers from the COVID crisis, the debate in Washington will inevitably return to issues such as the FHA’s proper role, the way forward. GSE reform and withdrawal from guardianship, and the proper role of the CFPB and mortgage regulations in protecting home buyers and homeowners.

Statistics show that consumers benefit from the competition, choice and personalized service offered by IMBs (and especially small IMBs). Thus, federal mortgage policy should promote equal access for smaller mortgage lenders, reject excessive new rules that undermine IMB’s good reputation for lending to minorities and other underserved borrowers, and, above all, reflect an understanding of who IMBs are. and what a key role they play in this area. our housing and mortgage markets.



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