High Fees By Nonbank Lenders Put Black And Latino Homebuyers In Disadvantage: Report

Nonbank lenders, who now lead the charge in the U.S. residential mortgage sector worth $12 trillion, have been found to impose higher fees, disproportionately affecting Black and Latino homebuyers.

What Happened: As per a recent Bloomberg analysis published on Tuesday, conventional banks have steadily retreated from the market, while nonbank lenders – primarily operating online with less federal regulation and a higher reliance on fee income – have filled the void. This shift’s fallout is a fee surge for the least wealthy homebuyers.

The study assessed over 38 million mortgages from 2018 to 2022, revealing that nonbank borrowers paid approximately $300 more in upfront fees than borrowers from standard banks. Moreover, Black and Latino homebuyers using nonbank lenders faced steeper fees than their White counterparts.

In the past five years, nonbank lenders have collected $71 billion in fees from about 60% of U.S. home loans, which is nearly three-quarters of all fees collected by lenders and brokers.

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Nonbank lenders maintain that their fee structures are not racially or ethnically discriminatory. They attribute any fee discrepancies to individual variances and contest that it’s unjust to scrutinize mortgage fees without considering interest rates.

However, the Bloomberg report, factoring in the average U.S. homebuyer mortgage duration (eight years), identified nonbank loans as pricier than traditional bank loans across all income brackets.

The Consumer Financial Protection Bureau (CFPB), the only federal entity overseeing nonbank lending practices, has not yet responded to these revelations.

Why It Matters: These findings raise concerns, particularly as nonbank lenders have taken a substantial market share following traditional banks’ retreat. The phenomenon adds to the challenges homebuyers face, especially the financially disadvantaged.

These issues have been a point of debate in the real estate industry, as highlighted by billionaire Grant Cardone’s comments. Cardone vouched for renting over buying a house, calling mortgage “just a fancy bullsh*t word for paying rent for 30 years to the bank.”

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