Non-Conventional Lenders Flourishing in New Market

December 11, 2018 by Kevin S. Kim, Esq.

Rising interest rates and overheated housing markets have taken their toll on mortgage bankers, with many lenders laying off personnel across the nation.

Record low rates of a few years ago resulted in many homeowners refinancing their loans at a historically low rate. Although rates are still low, it has been hard for mortgage lenders to survive in a shrinking market of inside-the-box borrowers.

However, there is one group that continues to thrive even with a tightening market. Mortgage brokers continue to gain market share and add employees even as mortgage lenders struggle. Private money lenders, also known as non-conventional lenders, lead the way, as they offer products and rates that keep mortgage lenders struggling to compete.

United Wholesale Mortgage, a mortgage lender that primarily works with brokers, said that it saw a 52% annual increase in volume in the third quarter. On the flip side – mortgage lenders had either weak growth or remained flat in 2018.

Even as retail originations decrease, some mortgage brokers have seen double-digit growth during 2018. This growth has led to mortgage brokers and non-conventional lenders adding employees and opening new offices.

“This is more of a mortgage broker story than a UWM story,” UWM President and CEO Mat Ishbia said. “UWM is growing loan production so quickly and we’re hiring over 600 people a year, even while so many companies are slowing down and laying people off, because mortgage brokers are growing so fast.”

Ishbia went on to say that consumers and realtors are coming to realize that the best place to get a loan is through a mortgage broker. He further explained that rising interest rates hurt brokers less than mortgage lenders, as they generally originate less refinance mortgages. While rising rates are good for anyone in real estate, they hurt brokers the least.

Most industry professionals agree that consumers like the personal touch that they receive with mortgage brokers over retail mortgage lenders. Brokers work with many different lenders, so they have a much better ability to tailor a loan product around the consumer’s needs.

Non-conventional lenders have even more options, as they work with investor funds where they can in-house underwrite and have more flexible payment terms. This financing flexibility has fueled the flip market for the past several years, where “flippers” need quick cash to close the deal, as well as additional funds to complete the rehab.

More realtors are also turning to mortgage brokers as housing prices continue to climb. Conventional mortgage products typically have stricter qualifying terms and down payment requirements. Brokers can search through a myriad of banks to find a product that works for the home purchase, not the other way around. If they cannot find a program that works for a potential borrower, they can always turn to the private lender market, where a loan can be designed around the borrower’s immediate needs.

“Realtors prefer working with a local mortgage broker who does a great job, instead of someone at a call center or national bank,” Ishbia said. “So many retail loan officers are converting back to mortgage brokers because they realize they can give consumers better rates, they have more product options, and they can hold lenders accountable to fantastic service standards that they’ve come to expect.”

When rates are stable or dropping a bit, it helps some of the larger mortgage lenders to stay in the game. However, regardless of where rates go, mortgage brokers and non-conventional lenders have the flexible terms and loan products that allow them to ride out the rate turmoil and continue to flourish in tight markets.