An increasing share of aspiring U.S. homebuyers are getting mortgages from "non-banks" that can accommodate borrowers in ways traditional lenders may not.
Six of the top 10 home lenders by volume now fall into this category. Customers include the self-employed and those who rely on bonuses as a substantial part of their income. Even homeowners who simply want to preserve cash for other investments often can find a way.
The trick is knowing where to apply.
Guy Cecala, publisher and chief executive officer of Inside Mortgage Finance, recommends comparing interest rate and underwriting information from a credit union, a big bank such as Wells Fargo or JPMorgan Chase, and a non-bank lender.
"There's nothing wrong with getting a loan from a non-bank," Cecala said. "Often you'll get better terms, better service and looser underwriting."
PennyMac Financial and loanDepot.com are among the biggest such players, according to Cecala. Given that an estimated 15 million Americans were self-employed in 2015, according to the Bureau of Labor Statistics, the two groups may be natural partners.
June Richardson, a vice president at mortgage lender GuardHill Financial Corp. in New York, is a loan officer who works with the self-employed and other variable-income borrowers, as well as foreign nationals and applicants to cooperative and condominium buildings.
If a prospective loan doesn't fit Guardhill's criteria, Richardson might still be able to put together a deal with a local savings bank or a lender that serves high net-worth clients.
"Life is not a cookie-cutter circumstance. Everyone has their own set of baggage that they come to you with," Richardson said. "You need to have the right team behind you in order to get the deal done."
Although an increasing percentage of households headed by 65- to-74-year-olds carry debt backed by their homes, obtaining a mortgage can be challenging. Fannie Mae's HomeReady program allows the income of adult children to be considered in an application even if they don't plan to reside in their parents' home. In other cases, lenders may count a percentage of assets in qualifying for a loan.
Richardson's gamut of options still includes interest-only loans that might be right for people who earn a low base salary and periodic bonuses and even adjustable-rate mortgages that fluctuate every month, something Richardson says may be best suited to borrowers who can pay off the mortgage if payments rise too high.
Unlike Wells Fargo or Chase, Guardhill is not a bank because it doesn't accept deposits.
The financial crisis of 2008 essentially sent the mortgage market back to big banks and the sudden dearth of competition meant those institutions didn't necessarily have to offer the best rates or most flexible underwriting.
"All they had to do was open their doors in the morning and they got as much business as they wanted," Cecala said.
Tighter regulation and mortgage-related lawsuits later pushed those banks to focus more on wealthy clients and jumbo mortgages, which carry fewer restrictions than loans sold to Fannie Mae, Freddie Mac or backed by the Federal Housing Administration. The shift opened the market to non-banks funded by hedge funds and private equity, Cecala said.
Both banks and non-banks have been sued since the financial crisis, with many cases hinging on allegations that the institutions didn't screen borrowers closely enough to make sure they could repay loans.
Citadel Servicing Corp. of California is another non-bank lender that works with borrowers who don't fit the traditional mold. The company arranges mortgages of up to $3 million and even serves customers with credit scores below 500, whom mainstream lenders generally will shy away from. One option it provides allows the borrower to use bank statements as proof of income rather than a W-2 form, which is often key for the self-employed.
The lender originates about 500 loans a month across almost 40 states, said Will Fisher, senior vice president for loan production, sales and marketing at Citadel Servicing.
The company's niche is something Fisher calls "aspirational" non-prime loans for people who might not yet qualify for a traditional mortgage but may in a few years. Interest rates typically run half a percentage point to 1 point higher than the prevailing market rate. Down payments of 20 percent to 40 percent may be required.
Citadel Servicing's largest pool of customers is the self-employed, who usually wind up with either a 30-year, fixed-rate amortizing mortgage or an adjustable-rate loan with a fixed payment for seven years and a payment that fluctuates annually after that.
"We try to be very careful," Fisher said.