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SoFi Aims to Shake Up the Mortgage Market

The prime mortgage market in the US has a new player, one that plans to make over $1 billion worth of business deals by the end of 2015.

This ambition is a clear sign of how non-banks are throwing down the gauntlet to traditional lenders restricted by tough regulations and capital standards.
SoFi, a marketplace lender based in San Francisco, started out as a student loan refinancer. Now the company says it is the first to perform the complete home-loan package online, from initial quote to closing.

Since last autumn, when it opened for business, SoFi has put together a $100 million portfolio by offering mortgages valued at up to $5 million in 17 states. Required deposits are as low as 10 percent of the property’s value, which is far lower than the 20-30 percent minimum that most traditional banks ask for.

Chief executive Mike Cagney says that the company wants to cater to high-income young professionals who are put off by long and paperwork-heavy processes. Mr Cagney said that people between 25 and 40 are being offered products and deals designed for their parents’ generation.

SoFi is funded primarily via warehouse lines of credit from eminent financial groups such as Credit Suisse, Barclays, Goldman and Sachs The company was also the first to securitise ‘peer to peer’ lending in 2013. SoFi’s goals are typical of a new type of non-bank financier grabbing business from institutions encumbered by heightened regulator scrutiny, legal issues related to mortgages, and new rules requiring them to maintain more capital.

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According to newsletter Inside Mortgage Finance, in 2014 non-banks accounted for 38 percent of the mortgage origination market, which is worth an estimated $1.2tn. A year before, it was at 27 percent. The biggest of these originators, Quicken Loans of Detroit, ranked third, surpassing Bank of America and Citigroup. Freedom Mortgage of New Jersey and PennyMac Financial also experienced strong growth.

According to Goldman Sachs, these non-bank lenders, which have lower overheads and less restrictive supervision than traditional banks, could divert an estimated $11 billion of annual profit from banks over the next five years. Of that amount, $2.3bn could come from mortgage servicing and orientation, which is second only to unsecured personal loans in profit volume.

Ryan Nash, a Goldman analyst, wrote that although trends are within their early stages at present, share is shifting rapidly within a large market towards non traditional lenders.

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