While homebuyers tend to gravitate towards banks and credit unions to make their dreams a reality, the role of alternative lending investors should not be overlooked. Independent mortgage bankers function legally and securely outside of the banking world to provide financing to people seeking the American dream.
First, we should be clear about the origins and purposes of alternative lending. If we go back to the late nineteenth century in Chicago, we’ll see a city hurt by banks losing capital and not being willing to invest in real estate. Alternative lenders came and helped the city to grow into the metropolis it is today by extending loans to homebuyers. This was an example of American capitalism at its finest; industrialists with vision saw a need with potential upside and built a business model around it.
Moving into more modern times, specifically around the financial crisis of 2008, an interesting trend emerged. Banks were growing leery of financing government-backed programs for homebuyers, like USDA-, VA-, and FHA-backed loans. Without these alternative lending funding, many families would not be able to purchase homes, having a very real impact on the American economy.
Concerns and Protections
Critics and skeptics of alternative lenders will cite the security of banks. In the wake of the 2008 economic downturn, government regulations were established to better protect homebuying consumers across the board, regardless of the financer’s business model, or a price threshold. In effect, these laws have made independent mortgage bankers just as safe as traditional lending institutions like banks and credit unions.
To put it simply, independent mortgage bankers can only be successful if they know their business. They would not be in business very long at all if they continually trapped or tricked their clients. In reality, people who make their living in the alternative lending industry must know the landscape of the neighborhoods, markets, or territories to make reasonable deals and provide expert advice to clients. Traditional lenders have the advantage of numerous resources to research the area and report on it. Individual mortgage bankers make it their business to learn and analyze this information; they live and die off name recognition and their track record, so they must be successful to stay afloat.
First-time homebuyers who want personalized, expert guidance should strongly consider alternative lending sources rather than defaulting to seeking loans from banks or credit unions.