As federal red tape has forced traditional lenders to recoil from the mortgage market, private lenders are filling the gap for lower-risk borrowers, reports The Wall Street Journal's Kirsten Grind. But there are repercussions.
That means a small but growing slice of the mortgage market has shifted from mainstream banks to an informal, loosely regulated corner of property finance. These lenders can earn 8% and more on their money—the catch is they must stomach the risk of lending their savings to borrowers rejected by banks.
Since these lenders are so small, Grind reports that its hard to know exactly how many are out there. And its also tough to track their activity.
Many private lenders issue too few mortgage loans to be closely watched in the patchwork of state and federal oversight that bind banks and other larger financial institutions. They nonetheless must register with their states at a minimum. The oversight is supposed to make sure lenders don’t mislead investors or engage in deceptive practices.