Talk about borrower diversity, what about lender diversity. There are about as many different ways to build a mortgage today as there are lenders looking to do business.
The range of approaches being used in the mortgage market currently is stunning. For example, there are institutions approaching consumers that don't even realize they are in the market - and in many cases they aren't yet, because they couldn't hope to qualify. But some lenders and nonprofits are venturing deep into the ranks of the unready, doing the substantial legwork, debt cleanup and credit education activity to eventually fashion a creditworthy homebuyer.
Take for example the national network of locally based NeighborWorks organizations. They make borrowers the old fashioned way. They build them from the ground up - with tireless effort, counseling and classwork, along with some funding and support from local banks, communities and government. But what they end up producing are mortgage-ready consumers ready to be handed off to a lender.
Contrast that with lenders that focus on serving cream-of-the-crop borrowers, with high incomes and high-demand professions (read job security), who transact mortgage business with a few swift and efficient interactions over the Internet.
Then, somewhere in between, consider lenders that take a borrower who believes he or she is ready - but, in reality, is going to be a very hard fit in the A-quality world of perfect credit, easily appraised homes, long-established job history and no substantial extraordinary income. This hard-to-fit borrower is part of the newly expanding world of "alternative-A" lending if their credit is very good. Or, they might be part of the subprime world if their credit is less than perfect.
All this lending diversity is being spawned in direct response to a world of increasingly diverse borrowers. It is an example of how business interests can naturally converge with public policy goals. These lenders are doing what they do not because someone told them to, but because they discovered there is good business to be had in each of these niches.
Take the alt-A market for starters. Headlands Mortgage Company, Larkspur, California, decided it liked the alt-A niche. Headlands Chairman and CEO Peter Paul, who founded the company in 1986, says these are high credit-quality borrowers, but in some way each of these borrowers breaks some standard conforming loan rules. Paul says that typically the kinds of rules they...