Recently there has been a renewed interest in the role of non-bank lenders in the broader mortgage marketplace. Independent mortgage bankers (IMBs) currently originate more than half of single-family mortgages. Their success is based on a combination of local market knowledge, innovation, nimbleness, and commitment — in fact, the vast majority of IMBs are monoline institutions with mortgages as their sole line of business.
IMBs have always played an important role in real estate finance. For more than 150 years, they have been an integral part of the industry. Back in the “Wild West” — actually Chicago in the 1870s — a lack of bank capital threatened to constrain the young city’s growth. IMBs stepped in to fill the gap caused by limits on the banking industry’s ability to move capital to where it is needed most, and IMBs have played a large role in the development of many other fast-growing parts of the country ever since. They have helped meet consumer demand for generations.
Today IMBs play an important role helping first-time homebuyers secure financing, and are the leading lenders in FHA-, VA-, and USDA-backed lending. While that’s typically been true in these programs, as banks have pulled back from government-supported programs for buyers in recent years, IMBs have met the demand from that important sector of the market, and their share has increased further as a result. Their role in real estate finance is vital.
Some have argued that IMBs’ business model creates systemic risk for the housing market and the economy, but the intensity of those concerns is exaggerated. In the aftermath of the 2008 financial crisis, reforms were made to protect consumers that apply to all lenders, regardless of business model. Consumers are equally protected, no matter with whom they do business. Minimum capital requirements to participate in government-backed loan programs were increased tenfold in 2008, and were adjusted further in 2015. Today’s IMBs are also subject to supervision and consumer compliance exams in each state in which they operate.
Because banks collect federally-insured deposits, they are subjected to prudential safety-and-soundness standards to protect the Federal Deposit Insurance Corporation (FDIC) and, by extension, taxpayers and depositors, against loss.
Most IMBs, by contrast, are privately-held companies, owned and operated by a single individual or small number of owners whose personal net worth is fully invested in the company. This is the definition of “skin in the game.”
IMBs strengthen both markets and consumers through the business model diversity, competition, and innovation that these firms can foster. They play a vital role in helping important sectors of the market, like first-time homebuyers, obtain financing and build wealth and communities through homeownership.
MBA as an association takes seriously the relationship IMBs maintain both with regulators and government entities such as Ginnie Mae. In fact, MBA is continuously working with FHFA, HUD, and Ginnie Mae to ensure that lender and counterparty standards for IMBs properly protect the government’s interest while fostering the ability of smaller institutions to participate and thrive. A level playing field that supports the diversity of business models and charters, regardless of size, remains the cornerstone of our work.
We don’t know what the future holds as rates rise and our industry landscape begins to change.
What we do know is that IMBs continue to play a critical role in our housing finance system, and that the regulations and standards that govern them have never been stronger. There has never been a more important time for our IMB members to engage with MBA to ensure that policymakers understand and embrace this important market segment.