In the past, banks were the premier lenders for anyone who needed a source of funding. That meant that it was a seller’s market and that banks could pretty much determine the circumstances under which they loaned money. This was true for a long period of time, but non-bank lenders are on the rise and their services are increasingly popular.
Non-Bank Lenders Broadening Services
One of the first reasons that banks are no longer the only player in the game has to do with the fact that non-lenders are broadening their scope. In the past, these services were not available or very narrow in scope, but that is no longer the case. Many of these lenders outside the traditional banking arena are now full service providers, giving those in need of money an alternative place to receive it. This has proved to be a big selling point with today’s crash-strapped borrowers.
The other reason contributing to the rise of non-bank lenders is the practice of cherry picking consumers for mortgage loans by traditional banks. Non-bank lenders are more eager to cater to a wider section of consumers with no stifling lending requirements. This is part of the reason why lenders outside the traditional bank are experiencing explosive growth. According to publication Inside Mortgage Finance, nonbank lending rose to 37.5 percent of the market during 2014, up from 14 percent in 2011.
Non Traditional Lenders Now Part of the Home Lending Field
Non-bank lenders are becoming more prominent in several different fields, especially when it comes to providing funding for homeowners. One such area is the mortgage lending outside the traditional market. Sensing the opportunity, non-banks have pulled out all stops to woo consumers with irresistible rates and underwriting.
In about two years, the value of loans services by just one of those providers, Ocwen Financial, experienced growth of 355%. While they had a $102-billion loan servicing book at the end of 2011, that number has grown to $465 billion at the end of 2014.
Over that same period, the number of loans that provider saw in general also increased substantially. This ballooned up to 326% growth, going from nearly 700,000 loans in 2011 to nearly 3 million by the end of 2014. This story from just one lender illustrates the growth potential is in the market. As others have realized the opportunities, more alternative lenders are entering the market in general.
The Regulatory Environment
Such fast growth in any industry will attract the attention of regulators, and the rise of alternative lending options has been no exception. In fact, Ben Lawsky, New York State head of the Department of Financial Services, has been looking into how this affects borrowers for some time. He has already put a hold on the sale of loan portfolios from Wells Fargo to Ocwen, arguing that Ocwen doesn’t have the staff or technology to handle such a large book of loan service. One of the big concerns about this has to do with individuals wondering if some of the same lending practices that caused mortgage problems in the last decade will only reappear in the event that these alternative lenders become even bigger in the market.
That being said, mortgage availability from traditional banks is unlikely to expand in the days ahead. So alternative lending options will continue to be the best choice for consumers thus helping non-bank lenders grow at a faster pace.