Standard & Poor's U.S. Housing and Residential Mortgage Finance outlook for 2014 predicted that nonbank firms would play a growing role in the mortgage sector this year. The ratings agency noted that large banks have backed away from the market in response to heightened capital requirements and other new regulations being implemented under an international risk management framework. This gap has created opportunities for a variety of different companies.
For example, MarketWatch recently looked at how U.S. home builders are trying to streamline the process of lining up loans by developing financing arms that provide lending partners with information about properties so loan applications can be approved more quickly. Builders see getting involved in financing as an opportunity to remove obstacles that can inhibit sales.
Lenders typically look for red flags in builders' finances before financing the purchase of a new property. Builders hope that having a direct connection with lenders will speed up this process and make it less difficult to secure financing for newly built homes.
MarketWatch suggested that many of the buyers who would be expected to take advantage of financing referrals from builders could actually pay for the properties in cash, but would prefer to avoid locking such a large portion of their net worth into a house. The arrangement offers something attractive to all parties. However, the growing involvement of nonbank firms in the mortgage market raises questions about their ability to effectively manage payment schedules.
Specially designed loan management software can help nonbank lenders keep payments organized, whether the loans in question are conventional mortgages or construction loans.