Nonbanks Partnering With Depositories for Mortgages
Nonbanks are seeing mortgage lending opportunities through partnerships with community banks and credit unions. Key Mortgage, a nonbank mortgage lender, this week announced an affinity program that allows credit unions and community banks to turn to the non bank for mortgage originations. The program offers depositories end-to-end sup-port including loan origination, processing, under-writing, closing and borrower guidance.
The services can be completed with co-branding between Key Mortgage and the partner institution. Ralph Melbourne, president of title services and adaptive insurance at Key Mortgage, said the program is valuable for community banks and credit unions that have pared their mortgage lending activities in recent years despite strong demand from borrowers. “We handle underwriting, closing, and offer a wide product range, all while the partner retains the client relationships,” he said. “We have over 25 investors in our organization and we can help banks in the community maintain their client base. ”He added that Key Mortgage’s product portfolio ensures that smaller banks and credit unions don’t have to turn away members who need real estate financing. “I don’t think borrower demand has gone away but I think other things that are going on in the economy have put pressure on [community banks and credit unions] to look for other alternatives for mort-gage lending,” Melbourne said.
Ron Haynie, senior vice president of mortgage finance policy at Independent Community Bankers of America, said community banks are considering nonbank partnerships as they pull back from mort-gage lending due to increased regulatory scrutiny on capital requirements. He said the decrease in mortgage lending at banks has been more pronounced for construction loans, including debt service coverage ratio loans and residential transition loans, noting that local banks used to be a primary source for construction financing. “Many communities and towns across this country have a housing shortage, but the capital charges for construction lending are very punitive and that’s even more so for acquisition and development loans,” Haynie said.
Haynie also said that capital charges and regulatory requirements have led many community banks to sell mortgage servicing rights, which has led to fewer opportunities for community banks to recapture those borrowers for future mortgage lending. Some regulatory relief may be coming to com-munity banks soon that would increase lending opportunities. The Community Bank LIFT Act introduced into Congress this month would update the Community Bank Leverage Ratio frame work by expanding the asset threshold for community banks from $10 billion to $15 billion and adjusting the leverage ratio range to 6% to 8%. It is currently set at 8% to 10%.
Curt Long, chief economist for America’s Credit Unions, a trade group, said liquidity is a potential constraint for some credit unions because they are mainly funded by member deposits. “[Liquidity] is one key area where credit unions are just not on the same playing field as other lenders,” he said.
Still, credit unions have seen an increase in originations this year due to a decrease in interest rates, with first-lien mortgage originations at federal credit unions up 25.3% from the first half of 2024 to the first half of 2025, according to Inside Mortgage Finance.
Long noted that interest rate reductions can especially help credit unions because they can often offer rates lower than other lenders. “The credit unions tend to offer best rates in the market, mainly because they’re member owned, and so they don’t have to provide a surplus to shareholders,” he said.
He also said that federal credit unions benefitted from lending to borrowers in the defense and military industry. For example, one of the largest originators among federal credit unions is Navy Federal, which has a 10.6% market share among federal credit unions and increased its origination volume by 15.7% year-over-year in the first two quarters of 2025.
– James Dohnert, Reporter, Inside Mortgage Finance jdohnert@imfpubs.com