Nonbanks Thanked for Picking Up Slack in Mortgage Lending

SAN DIEGO — Independent mortgage banks forced to the sidelines following the housing bust are making a comeback.

At a conference here Thursday, officials at Fannie Mae, Freddie Mac, and Ginnie Mae all heaped praise on nonbank mortgage lenders for stepping up to provide loans for home purchases at a time when many banks have scaled back. The message: without them, many recent home buyers might still be renters.

"If you guys had not stepped up we would have had a hole," Ted Tozer, the president of Ginnie Mae, told 500 independent mortgage bankers at an industry conference here. "The numbers prove that if you are driven out of the industry and we don't support you, the industry can't operate."

The government-sponsored enterprises are purchasing more loans than ever from nonbank mortgage lenders largely because big banks have pulled back from selling to Fannie and Freddie after getting clobbered with repurchase requests. Large banks have also dramatically scaled back their Federal Housing Administration lending after paying huge fines to FHA and the Department of Housing and Urban Development to settle claims of improper underwriting. JPMorgan Chase Chairman and Chief Executive Jamie Dimon said earlier this year that the banking giant would be "very, very cautious" about originating FHA loans, given the risk of paying out more claims.

Wells Fargo, JPMorgan Chase and Bank of America have all lost market share in the past four years to independent mortgage bankers, Tozer said.

"Those three organizations pulling back created a hole of one-third of our capacity," he said. "The landscape for banks has changed."

Indeed, following the crisis nonbank lenders were struggling to find new loan business because their main source of funding — bank warehouse lines of credit — had largely dried up. That funding has returned even as banks themselves have pulled back on mortgage lending.

Wells Fargo's share of Ginnie's loan volume fell to 24% this year from 38% in 2010. JPMorgan Chase's share fell to 3% this year, from 9% in 2010. B of A now has 2% share, down from 16% four years ago, he said.

By comparison, independent mortgage banks now have a 50% share of Ginnie's business, down from 14% in 2010.

Ginnie does not originate or purchase mortgages. Rather, it guarantees the timely payment of principal and interest on securities that are backed by loans insured by other government agencies, primarily the FHA and the Department of Veterans Affairs.

To be sure, there is concern that nonbank mortgage lenders may be picking up too much of the slack. A report from the Federal Housing Finance Agency's Office of Inspector General in July concluded that nonbank lenders pose a risk to Fannie and Freddie because they have limited oversight from regulators and are not as well capitalized as banks.

But at a panel discussion here, Paul Mullings, a senior vice president at Freddie Mac, seemed to dismiss the report's findings.

"We do not see this as a risk that cannot be managed," Mullings said.

Independent mortgage bankers now make up 33% of Freddie's business, up from 9% in 2010, he said. Mortgage banks now account for 40% of sales to Fannie, up from just 4% in 2007.

Tuck Reed, a senior vice president of corporate strategy at Fannie Mae, called the growth of nonbank lenders "phenomenal" and vowed to provide more liquidity and improvements in policies and tools. Fannie is now allowing mortgage banks to use its collateral underwriter tool to evaluate appraisals, and an early check automated tool for checking data on the delivery of loans.

"We appreciate your business, we want your business very much and we are committed to earning your business," Reed said.