If you’re looking for a mortgage, there’s one less reason to walk into a bank these days.
Alternative mortgage lenders — non-bank companies without customer deposits — have been transforming the mortgage industry.
The buyer-focused lender’s goal is to offer rate transparency, multiple options, and help coach the buyer through the home loan process quickly and efficiently.
Source: Nerdwallet and Hal Bundrick
The biggest banks, once major players in the $1.5 trillion mortgage industry, have backed away from a large portion of the business, citing low profit margins and high legal risks. It’s a result of the enhanced regulatory environment that followed the 2008 housing meltdown.
A number of new players jumped into the void — alternative lenders testing new business models and leveraging technology to improve the process of getting a home loan or refinance.
- Online mortgage lenders seek to shorten the home loan process.
- Marketplaces and brokers assist potential borrowers shopping for mortgages and the best interest rates
- Non-bank lenders offer solutions to credit-challenged consumers.
Interestingly, the structure and capabilities of these alternative lenders vary widely.
Next Generation Mortgage Lenders Streamline the Process
Alternative lenders, for example, are online mortgage originators – and they are becoming more of a force in the industry. These next generation lenders strip away layers of delays built into the old system by using automated loan-decision algorithms, electronic document gathering and secure online communications.
The good lenders with an online presence offer another twist on the process. Some companies provide a concierge service, with advisors guiding you through the home loan selection process. It’s more of a hands-on process, in which the broker works closely with you and the lender to complete your loan package.
The most successful lenders also help teach and guide the borrower through the complex waters of the process.
Non-bank Alternative Lenders Can Actually Help Those with Less-than-Perfect Credit
In some ways, the mortgage industry is coming full circle, back to where it started. Wells Fargo, JPMorgan Chase, Bank of America and other huge lenders — battered by Justice Department fines, federal lawsuits and growing regulation as a result of the housing crisis — are shying away from mortgage lending, especially FHA loans, which have long catered to first-time homebuyers and borrowers with lower credit scores.
As more of the large, national banks move to lending only to the most-qualified borrowers, community home lenders are filling the void.
Non-bank lenders are much like the original mortgage bankers; many are locally owned and family-run businesses serving their hometowns. These smaller lenders often face fewer federal regulations and still welcome borrowers with less-than-perfect credit, and they have bolstered the FHA-backed lending that big banks have been avoiding.
You have more mortgage options than ever
Alternative mortgage lenders now account for almost half (45%) of all home loans, according to the Federal Reserve — the largest share in 20 years. These originators are transforming the mortgage loan process with faster approvals plus online application and document processing, and they are powering a more competitive market.
Choosing whether to go with a big bank or a direct lender is a personal choice, based on your comfort and familiarity with the home loan process and how much guidance and advice you prefer.
But it’s empowering to know that when it comes to financing a home, you have more options than ever. It would be my pleasure to help you when the time is right!