Growing the Role of Non-Bank Lenders

As the role of non-bank lenders has shifted in the past few years, regulators are considered allowing further growth for these mortgage institutions and real-estate investment trusts (REIT), Wall Street Journal reports.

“It’s time to make the system reflect the market that it serves,” said Pete Mills, SVP of residential policy at the Mortgage Bankers Association on WSJ.

While some have questioned if nonbanks like REITs should have access to taxpayer-subsidized funding, according to John von Seggern, President of the Council of Federal Home Loan Banks, having big clients gives the system the financial clout it needs to support smaller banks.

“We have access to world-wide markets because the big banks give us a lot of volume,” he told WSJ. “We’re able to then take that favorable funding that we get and we’re able to lend it to all of our members, big and small, at the same rate.”

Some suggest that REITs make up an optimal backbone for the mortgage market, leveraging less risk than before the financial crisis and able to quickly raise and deploy money when they see an opportunity.

“Real estate is protected from volatility by factors like location, scarcity, and plot size,” NuWire states. “But unlike tangible property, which is expensive to buy and tough to sell, REITs can be traded on many investing apps. Because they come in single shares, even low-budget investors can diversify their REIT holdings.”

According to WSJ, the proposed expansion of home-loan banks and REITs would run counter to the plan to privatize Fannie Mae and Freddie Mac.

“While Fannie and Freddie buy mortgage loans and package them into securities, the Federal Home Loan Banks play a different role in housing finance: channeling money from global bond markets to thousands of institutions across the U.S.,” said WSJ.