Why Non-Bank Lenders Dominate the Mortgage Market

Richard Parker  |

If you are in the market for a mortgage, what do you prioritize? Is it the type of the lender or the rate and loan terms? Every borrower these days would likely answer that it is more important to get a good rate and an attractive loan term, rather than focus on which lender they are borrowing from.

The shift in borrower behaviour, as well as the mortgage market changing from a bank-dominated industry to one where more non-banks now offer mortgages, came about in recent years after the financial crisis. Consumers are looking at flexibility, the number of options available to them, as well as the overall service convenience when looking for a mortgage lender. In addition to this, technology also played a big part in making the mortgage application process more straightforward, and non-banks are ahead of the curve when it comes to offering loan applications online.

What Happened to the Housing Market?

It is not surprising that the financial crisis led to changes in how people today find financial products that suit their needs. Before the housing market collapsed in 2009, homeowners wouldn’t even dream of defaulting on their mortgage payments. When the fallout began in 2009, it affected the entire industry. Back in 2011, 50% of new loans came from the three biggest US banks: Wells Fargo, Bank of America, and JP Morgan Chase. In 2016, this number drastically changed and the share of mortgage loans by these banks dropped to 21%.

Traditional banks moved away from the housing market as a result of the change in regulations to mitigate the effects of the financial crisis; they became more cautious because these regulations posed more significant risks for them.

What Does This Mean for Consumers?

Traditional banks shifting away from the housing market and non-banks stepping in to take the bulk of the business had a positive impact on consumers. Banks today have limited offers to the extent that only those with perfect credit get approved. On the other hand, non-banks are more flexible regarding extending loan products to individuals with bad credit. With more options and a rather inclusive approach, it makes non-banks the go-to option for many people who desire to own a home but don’t necessarily have a perfect financial background.

Which Lender to Choose?

Although it is quite apparent that non-banks are currently on top of the housing market, traditional banks still offer excellent products. What matters for consumers today is the price of the loan, the interest rate, and in some instances, the recommendation of their real estate broker.

Another thing that lenders focus on is providing consumers with excellent service. At the height of digitalization, many lenders invest in online tools that deliver added convenience and reduce much of the complication entailed with applying for a mortgage.

The competition in the housing market will remain stiff. Banks and non-banks that want to stay on top in spite of future economic uncertainties must first and foremost focus on the needs of consumers. Owning a home is a basic necessity, and where the market will shift next is yet to be seen. For now, it all boils down to product and service excellence.

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