December 25th, 2017 9:48 AM by Jackie A. Graves
Online mortgage lenders, web marketplaces, new brokers and
non-bank lenders are all trying to make it easier to get a mortgage.
If you’re looking for a mortgage, there’s one less reason to
walk into a bank these days. Alternative mortgage lenders — non-bank companies
without customer deposits — are transforming the mortgage industry. Their goal:
to offer mortgage rate transparency and help you complete the home loan process
quickly, efficiently and mostly (if not completely) online.
biggest banks, once major players in the $1.5 trillion mortgage industry, have
backed away from a large portion of the business, citing low profit margins and
high legal risks. It’s a result of the enhanced regulatory environment that
followed the 2008 housing meltdown.
A number of new players
jumped into the void — alternative lenders testing new business models and
leveraging technology to improve the process of getting a home loan or mortgage refinance:
Online mortgage lenders seek
to shorten the home loan process.
Marketplaces and brokers assist
potential borrowers shopping for mortgages and the best mortgage rates.
lenders offer solutions to credit-challenged consumers.
But the structure and capabilities of these alternative lenders
vary widely. Here’s how to navigate the field.
Alternative lenders are online
mortgage originators that are becoming more of a force in the industry. In
fact, the largest of them, Quicken Loans, has become one of the
largest mortgage lenders in the country. And the
company is looking to become even more entrenched with its recent introduction
of a “Rocket Mortgage” service,
promising full mortgage or refinance approvals online in as little as
That kind of near real-time approval is an example of how
radically the mortgage process is changing. Next-gen lenders strip away layers
of delays built into the old system by using automated loan-decision
algorithms, electronic document gathering and secure online communications.
lenders strip away layers of delays built into the old system by using
automated loan-decision algorithms, electronic document gathering and secure
an opportunity to shave off a sliver of the monumental home loan market, new
are making a move to mortgages. Online student-loan refinance service SoFi now offers mortgage loans. And
in just five years, Loan Depot has grown to 5,000 employees,
offering mortgages as well as consumer loans to residents in all 50 states.
example is Lenda, a recent addition
to the home loan landscape, which so far serves only a limited number of states
but is a direct online lender offering purchase and refinance loans.
Marketplaces and brokers are mortgage
The easiest way for tech startups to enter the mortgage market
is by serving as a middleman. So that’s what you’ll encounter most in your
search for an online mortgage.
marketplaces, like LendingTree, Mortgage Hippo, Zillow and eLoan, are lead generators
for loan originators. Here’s how that works: Their mortgage rate algorithms
take your basic application info and present you a roster of potential lenders.
You choose one, or several, of the rate options, and the referring marketplace
site receives a fee for the lead. You then complete the process with the
mortgage brokers offer another twist on the process. Some companies
provide a concierge service, with advisors guiding you through the home loan
selection process. It’s more of a hands-on process, in which the broker works
closely with you and the lender to complete your loan package.
some ways, the mortgage industry is coming full circle, back to where it started.
Wells Fargo, JPMorgan Chase, Bank of America and other huge
lenders — battered by Justice Department fines, federal lawsuits and
growing regulation as a result of the housing crisis — are shying away
from mortgage lending, especially FHA loans, which have long catered to
first-time homebuyers and borrowers with lower credit scores. As more of the
large, national banks move to lending only to the most-qualified borrowers,
community home lenders are filling the void.
Non-bank lenders are much like
the original mortgage bankers; many are locally owned and family-run businesses
serving their hometowns. These smaller lenders often face fewer federal
regulations and still welcome borrowers with less-than-perfect credit, and
they have bolstered the FHA-backed
lending that big banks have been avoiding.
originators are transforming the mortgage loan process and powering a more competitive
Credit unions also play a growing role. They originated more
than 8% of U.S. mortgages in 2015, nearly double their amount in 2010,
according to the CUNA Mutual Group.
are non-bank mortgage lenders with national footprints, such as PennyMac,
but just like their local counterparts, they are built more for phone and
face-to-face transactions than for a strictly online loan process.
mortgage lenders now account for almost half (45%) of all home loans, according
to the Federal Reserve — the largest share in 20 years. These originators
are transforming the mortgage loan process with faster approvals plus online
application and document processing, and they are powering a more competitive
getting a mortgage online is not always strictly a keyboard- or smartphone-only
transaction. While the paperwork process is moving more and more to
e-documents, with some online services you’ll still have to visit a closing
attorney or notary to finalize the loan.
whether to go with a mortgage middleman or a direct lender is a personal
choice, based on your comfort and familiarity with the home loan process and
how much guidance and advice you prefer.
it’s empowering to know that when it comes to financing a home, you have more
options than ever.
By Hal M. Bundrick, CFP –
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