Should mortgage lenders consider payday loans?

The answer should be no!


Mortgage loans are out of fashion with some big banks these days because of the high cost of originating a loan. Jamie Dimon, CEO at JPMorgan Chase, openly questioned why the bank is still in the mortgage business in the company’s shareholder letter, citing “increasingly lower returns.”

But lenders looking for better results with other lending products have limited options. As this article in the May issue of the Atlantic shows, the same regulators that have driven up mortgage loan origination costs are now training their sights on payday lenders.

Payday lending rules proposed by the Consumer Financial Protection Bureauwould prevent consumers from re-borrowing to pay the interest on these loans, but has other consequences that hurt both lenders and consumers.

But the industry argues that the (CFPB’s) rules would put it out of business. And while a self-serving howl of pain is precisely what you’d expect from any industry under government fire, this appears, based on the business model, to be true—not only would the regulations eliminate the very loans from which the industry makes its money, but they would also introduce significant new underwriting expenses on every loan.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s