What does the Wall Street Journal have against nonbanks? That was my first thought when I read the Journal’s recent op-ed: UWM is a government mortgage canary. The op-ed used UWM’s announcement of a $2.05 billion strategic capital partnership to warn against the “riskier” mortgage loans originated by nonbanks.
In a rebuttal letter to the paper, Mortgage Bankers Association CEO Bob Broeksmit addressed the claims of elevated FHA delinquencies and said the Journal was trying to “link two unrelated stories under one alarmist headline.” Broeksmit said UWM’s decision was “the product of one company’s own misjudged bet on rates, not any indication of poorly underwritten FHA mortgages.”
To me, the attack on nonbanks is just a lazy way to tap into fear about another 2008-style housing crash, even though that kind of lending scenario no longer exists. Instead, the vast majority of mortgages are safe, boring 30-year-fixed loans where homebuyers put 20% down.
The boogeyman of ‘risky’ loans
Even the subprime loan products of the past have been reformed. Sure, you can get a bank statement loan today, but it will be funded by private investors and they’re the ones taking the risk, not taxpayers. You can also get an adjustable rate mortgage (ARM), but they’ve been defanged because you have to qualify for the recast payment.
Risky loans are hard to come by these days, so where does the Journal conjure up a boogeyman? FHA loans. These loans are specifically designed to help first-time homeowners so they allow lower credit scores and down payments. But FHA lending still has plenty of guardrails and taxpayers are protected through the FHA’s Mutual Mortgage Insurance Fund, which borrowers pay for.
None of this should be new information to the editorial board of the Wall Street Journal, but here we are.
First, the WSJ is happy to reinforce its own negative stereotypes of nonbanks.
“After the housing meltdown, big banks pulled back from the mortgage market as the government required them to hold more capital. Non-banks filled the gap, though they don’t have to abide rigorous capital, liquidity and stress tests like banks. They can also game financial regulations with interest-rate hedges.”
This isn’t rocket science: Nonbanks don’t have to ‘abide’ those things because they aren’t depositories. They still operate under strict financial regulations, including those imposed by the Dodd-Frank Act, put in place after the financial crisis. And the Journal’s use of “gaming” implies something sinister about a legal, standard business practice.
What the WSJ thinks is a ‘moral hazard’
The Journal acknowledges that nonbanks originate the majority of FHA loans, but instead of celebrating their commitment to serving some of the country’s most disadvantaged borrowers, we get this:
“These loans are pooled and sold to private investors with government guarantees. This lending system invites moral hazard, as non-banks make money by originating more mortgages.”
Yes, you read that right. According to the Journal, we should be worried because companies make money by — wait for it — doing more business. What has happened at the Journal? How is this is the view of the bible of business and the champion of capitalism?
If you wanted to make a list of the “moral hazards” in the business world right now, nonbanks wouldn’t even crack the top 500. They indeed “filled the gap” left by the big banks who decided after the financial crisis that serving this population wasn’t worth the time and effort.
The Journal alleges that during the pandemic, “lenders competed for business by easing underwriting standards. When interest rates rose in 2022, lenders further eased their standards. This let them make mortgages to borrowers who wouldn’t have otherwise qualified based on their incomes.”
To hear the Journal tell it, lenders are just handing out FHA loans like candy. Except, federal and state regulations make this impossible. And it’s the FHA that sets the standards for a borrower’s eligibility, including their debt-to-income ratio and minimum credit score. The FHA rules give lenders some flexibility for “compensating factors” that offset other weaknesses in the borrower’s lending profile, but if the Journal thinks those standards need to change, they should take it up with HUD/FHA, not blame lenders.
Should we worry about FHA delinquencies?
FHA delinquencies are on the rise, but context is important. These loans will always have a higher delinquency rate than conventional loans because of the borrowers they’re designed to serve. That’s why those borrowers pay a mortgage insurance premium, collected in the FHA’s MMI Fund, which protects the lenders. Taxpayers are not on the hook for any FHA defaults.
And, as Broeksmit notes in his rebuttal letter, the FHA’s MMI Fund, is “exceedingly well-capitalized: its capital ratio stood at 11.47% in fiscal 2025, nearly six times the 2% minimum Congress requires.”
In addition, we see an increase in FHA delinquencies because during COVID borrowers of all types could claim forbearance through the CARES Act or otherwise get loan modifications. Delinquencies are now rebounding as people are once again required to make regular payments. None of this should be surprising or alarming.
With this op-ed, the esteemed Journal unfortunately joins the legion of rank-and-file doomers who insist that we are on the verge of another 2008 housing crisis. The difference is that the Journal knows better.
