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Nonbanks: Taking Over Origination

nonbanks1Recent data from the Urban Institute reveals that nonbanks originated 60 percent of new mortgages this year. With nonbanks currently dominating originations, there are important facts policymakers need to know about it.

In 2013, banks used to originate 70 percent of mortgages, according to Urban Institute's data. However, the roles are reversed because now nonbanks originate 60 percent of new mortgages. And in the refinance sector, nonbanks originated 58 percent of purchase mortgages in 2017, compared to 63 percent of refinance mortgages.

Another notable update for policymakers is that when it comes to FICO scores, the information revealed that the median FICO score for nonbank originations has, “consistently been less than the median FICO score for bank originations for all three agencies.”

In addition, the report reveals that increased reliance on nonbanks may pose increased risk to the GSEs and FHA, as “nonbanks are not as stringently regulated as banks, which may pose greater counterparty risk to the agencies, particularly Ginnie Mae.”

Finally, policymakers should take into consideration that banks have pulled back from GSE and FHA lending. According to the data, those reasons include, “lack of clarity with loan investors, high cost of servicing delinquent loans, and uncertain litigation risks.”

To view the full report, click here.

About Author: Nicole Casperson

Nicole Casperson is the Associate Editor of DS News and MReport. She graduated from Texas Tech University where she received her M.A. in Mass Communications and her B.A. in Journalism. Casperson previously worked as a graduate teaching instructor at Texas Tech's College of Media and Communications. To contact Casperson, e-mail: nicole.casperson@thefivestar.com.

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