NEW YORK–Is subprime mortgage lending making a comeback?
One of the banes of the mortgage crisis and real estate meltdown of a decade ago, regulations such as Dodd Frank largely diminished subprime mortgages and the brokers who sold them. But the Wall Street Journal reported that while many banks avoid brokers because of the difficulty in monitoring loan quality, “small and midsize independent lenders want the brokers back.
Nonbank lenders that typically cater to riskier borrowers say they need brokers to fan out across the country and arrange mortgages to people with lower credit scores, or who can’t prove their income through a typical tax return.”
While brokers before the crisis served banks and independent lenders, the Wall Street Journal reported that today they are working largely for nonbank lenders who make up a critical part of the mortgage market.
“In the first quarter, nonbank lenders accounted for about half the mortgages originated in the U.S.,” the Journal said, pointing to data from Inside Mortgage Finance. “Lenders say there is an untapped market among borrowers with good credit scores like self-employed workers who don’t have proper income documentation, or 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 they are successful in recruiting brokers, lenders believe the market potential for both types of loans could reach $200 billion annually.”