Purchasing a home is one of the most significant decisions a person or family can make. Statistics show that a growing number of consumers are seeking out local lenders to help them through the home buying process.
They want someone with a vested interest in their community to help them with this decision. According to Home Mortgage Disclosure and Mortgage Bankers Association data, independent, nonbank mortgage lenders originated 40% of the home purchase loans made in 2013.
The differences in the basic business model of these lenders often are overlooked and misunderstood. From a market perspective, community lenders approve economically safe loans. Many, like mine, are small, owner-operated businesses that bear 100% of the market risk.
We can't afford to get loans wrong as our personal reputation and our personal assets, often our entire family's net worth, are on the line. Because we are small businesses, we understand needs of our neighbors and local small businesses owners, contributing to local economic growth.
From a regulatory perspective, consumers should feel protected because smaller, independent lenders must follow not just federal regulations like the qualified mortgage/ability-to-repay rules, but also stringent state regulations in every state we are licensed to do business.
For example, my company, Union Home Mortgage, is regulated and examined by over 20 states. Many state exams overlap and happen at the same time. We are also overseen by the Consumer Financial Protection Bureau. We must comply with the same guidelines as all other banks with very few exemptions.
Additionally, business partners such as Fannie Mae, Freddie Mac, Ginnie Mae and FHA, examine the operational and financial capabilities of the firms they do business with, including stringent net-worth, liquidity and profitability requirements. Other counterparties, like warehouse lenders, provide yet another layer of oversight to ensure that we are conducting our business in a sound and sustainable way.
When it comes to customer service, community lenders are some of the best in the business. We focus our attention on the needs of local families, businesses and farmers and are typically involved in local community affairs.
All too often in today's electronic society, we tend to forget the value of personal interaction, but many homebuyers don't. They still want the accessibility of walking into their local bank or mortgage banking company to talk to their loan officer or servicer.
Nonbank lenders come in all shapes and sizes. Most are family-owned, privately held independent operators, others are privately held by multiple independent stock holders. Some are larger equity fund owned, privately held and some are publically held nonbanks. None of this should be read as an indictment of other business models. The housing market today and well into the future consists of a variety of potential, qualified borrowers that will be best served by a diverse marketplace allowing them to shop with a variety of different types of firms and compare them to find the right mortgage.
Over the next decade, minorities are expected to drive 76% of household growth and millennials will form 24 million new households (Harvard Joint Center 2014 report). These are the first-time buyers we need to fill the significant void that exists in today's marketplace. By providing these consumers with a broad range of lenders, banks and nonbanks of all shapes and sizes, housing can once again be a driving economic force in today's American economy.
Bill Cosgrove is the owner and CEO of Union Home Mortgage, headquartered in Strongsville, Ohio, and the 2015 chairman of the Mortgage Bankers Association.
