Ask Our Broker: ‘Nonbanks’ safe for a mortgage?

2014-05-31T10:00:00Z Ask Our Broker: ‘Nonbanks’ safe for a mortgage?Peter G. Miller Times Correspondent
May 31, 2014 10:00 am  • 

Question: Our mortgage broker says he can get mortgages from both banks and nonbanks. Is it safe to get a mortgage from a nonbank?

Answer: As a borrower your goal is to get a low-risk mortgage that best fits your needs at the lowest cost. That’s a fairly standard definition but it doesn’t say anything about the source of funding. Your initial “lender” – the party who brings money to closing – could be a community bank, a savings-and-loan association, a credit union or maybe an insurance company. You might be working with a mortgage broker or mortgage banker. Or, your lender could be Uncle Ned.

Lately, however, we have seen the entry of a new funding source into the mortgage arena: the nonbank. It doesn’t get its funds from deposits, it has no ATMs or local branches. Instead, in the world of mortgage lending a nonbank might well be a privately held company that makes mortgages and also is active in other areas of real estate, such as brokerage, title insurance, property management and escrow.

From a borrower’s perspective the source of your mortgage doesn’t much matter. You can get an FHA, VA or conventional mortgage from any funding source and that loan will have terms and conditions that are exactly the same as any other FHA, VA or conventional loan. As a borrower you need to shop around and make sure you’re getting the best rates and terms from a mortgage source that can deliver your loan as promised.

Because of the mortgage meltdown the government has enacted strong consumer protection laws to reduce mortgage risks. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act lenders can no longer make the toxic loans that flooded the marketplace between 2000 and 2008 and lead in large part to the mortgage meltdown and with it falling home values and massive foreclosure levels.

This means you have protections in the marketplace that did not previously exist. It also means you will need to meet certain standards to qualify for a loan, such as a fully documented loan application and a careful credit check regardless of whether you get your financing from a bank, nonbank or other source.

In the end, borrowers want nonbanks in the marketplace because to survive such companies must earn your business. That means they must compete, and more competition in the mortgage arena is the best way to hold down real estate financing costs.

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