After having served the housing industry for more than 25 years, Frank Demarais is certain that there is far less competition in lending these days.
A 16-year former vice president of Fannie Mae’s single family business, and now the vice president for a non-profit lender in Washington DC, Demarais said that the lending community following the financial crisis has dwindled to just a few large lenders. The diversity of community lending, small banks and mid-size lenders that used to lend to all types of borrowers have disappeared, he said, and the regulatory and legislative environment isn’t helping the future any.
Big banks are not doing loans on anything but prime, high-income borrowers, leaving a giant gap for most Americans trying to obtain a loan, he added. In former days, before the crisis, the government had dedicated more incentives for banks to do lend to a diverse set of borrowers.
Demarais has worked for Manna Mortgage for the last ten years, a low-income financing and counseling resource. He said that throughout his career doing low-income loans, from 2001 to 2011, none of those borrowers were ever foreclosed on. In other words, low-income shouldn’t necessarily mean high-risk.
Subprime loans made in the run-up of the financial crisis was a unique product, unlike any other, he explained. They were low-or-non-documented loans with adjustable rates that eventually exploded, he said.
"For low-income borrowers, we have suggested only fixed-rate and fully-documented loans."
The issue throughout the financial crisis has been quality control, Demarais added. “No one was looking at the loans that were written,” he said. Now organizations like his are getting together to prove to Congress that responsible loans can still be made if more resources and legislation become geared towards it.