Two days in a row, the New York Times business section has highlighted non-bank lenders. Wednesday's paper carried an interview with Anthony Hsieh, the CEO of loanDepot, a "nonbank consumer mortgage lender" that says it is funding "well over $2 billion of home loans a month" nationwide. This is another area where regulation is lagging technology. From the Times interview with Mr. Hsieh:
Q. Can borrowers complete the entire mortgage application process from your website?
A. To do a mortgage 100 percent online right now is impossible. The government still wants you to use a paper product.
Today's Times has a story about Fundbox. The Times reports:
Investors in Silicon Valley are also excited about Fundbox, which closed a $40 million funding round last month. The company specializes in loans too tiny for most banks to bother with, offering credit lines of $1,000 to $25,000 to clients that range from sole practitioners like freelance programmers and designers to companies with dozens of employees, like small manufacturing firms. Customers can borrow in increments of as little as $100...Fundbox is competing with an expanding crop of online lending rivals. The field includes BlueVine, another firm that advances funds against invoices; small-term lenders like Kabbage andOnDeck; peer-to-peer lenders like Funding Circle, Lending Club and Prosper; and payment processors like PayPal and Square, which offer loans to some of their merchants.
I wrote a couple of years ago about the "garage guys" of lending, and about how the market for credit is regenerating outside the highly regulated banking system, which has become so highly regulated that it's inefficient.
There are a lot of policy implications for these developments. For one thing, in a financial crisis, maybe it's less important to rescue banks, because there are other, non-deposit-based sources of credit that either exist or will arise. For another thing, the effort to pile new regulations on banks lenders via Dodd-Frank may be ineffective or have had unintended consequences.