Markets & EconomyMortgage

What’s the deal with private lenders, anyway?

'Private' usually means a person, not an institution
  • Today the primary sources of mortgage credit are government agencies, all with relatively rigid standards.
  • There are private sources, but they are rare.
  • Today, since investors desperate to earn something on assets, all sorts of private financing should appear. But it has not: The reach of regulation has crushed even private parties.

Lenders are often asked, “Aren’t there any private lenders?” (Realtors and borrowers often ask us shortly after we have told the applicant, “Fannie says no.”) Where does mortgage credit come from in 2016? Today the primary sources of mortgage credit are government agencies, all with relatively rigid standards. Jumbo lending is similar, a narrow and shallow side-pocket. “Portfolio” lenders do still exist, making their own rules, but nearly all are heavily regulated financial institutions with credit standards tougher than Fannie except in two respects: non-warrantable condos, and borrowers who are asset-heavy (very!) but light on traditional income. “Yes, but I have a friend who heard about a client who got a private loan. Do you have any of those?” “Private” in that sense usually means a person, not an institution. To keep it all as murky as possible, there are -- have always been -- “hard money lenders,” which are small corporations sometimes c...