The Los Angeles Times article “After subprime collapse, nonbank lenders again dominate riskier mortgages” is misleading. The spin is non-bank lenders are originating more risky loans than banks. The real story is the US Gov’t is insuring and requesting lenders to originate FHA and VA loans, which are by nature “higher risk” (or sub-prime) loans, and banks are getting out of the market making those loans.
One of the more accurate quotes conveyed in the article was from John Shrewsberry, Wells Fargo’s chief financial officer. He indicated the bank was not interested in making loans to riskier borrowers, even those who meet FHA standards.”Those are the loans that are going to default, and those are the defaults we are going to be arguing about 10 years from now,” he said. “We are not going to do that again.” This position has been mirrored by Chase Bank President Jamie Dimon.
Lenders are dealing with conflicting regulatory requirements from multiple regulatory agencies. The CFPB is requiring only good loans be made to “qualified” borrowers. Meanwhile HUD is requiring lenders make loans to the “full” spectrum of borrowers. Disparate Impact has recently been confirmed by the Supreme Court, basically allowing HUD to use statistical analysis to determine if there has been Fair Housing discrimination by institutions.
The unintended consequence of the heavy handed approach of the regulatory agencies has been lenders are limiting the types of loan products being offered, and some lenders are completely getting out of the business.
Lenders made high risk loans, and there was fraud in several areas in the mortgage system, when the financial crisis hit in 2007. That said, you have some of the same politicians twisting lenders arms to make risky loans, while at the same time threaten them that they’d “better make good loans…”. Even if the federal government says they’ll insure a high loan to value loan with a poor credit score, banks don’t want to deal with the regulatory and economic consequences in the future, even if the loans presently being made meets the governments guidelines.
If you are in the Los Angeles area, have any questions or real estate sales or financing needs, feel free in contacting me.
Ron Henderson GRI, RECS, CIAS
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth