Rising mortgage rates a boon to smaller lenders

But smaller and community lenders are not necessarily going to offer the absolutely lowest rates, especially for savvy online rate seekers—most of whom are looking to refinance a home, which generally requires less hand-holding than a purchase.

(Read more: Why mortgage rates are taking a holiday)

Brian Del Terzo shopped online when he was buying his first home outside Minneapolis but ended up on a call list getting dozens of offers and rates. Instead, he went with a local lender, Waterstone.

“It seemed easier because I can get in touch with the loan officer more easily,” he said. “There is not as much red tape, especially if something unusual pops up.”

Though Del Terzo acknowledged that he may not be getting the lowest rate possible, he said he would happily trade that for better service.

“At the end of the day if I’m getting the home for the price I want, and the mortgage process is smooth, and I’m getting a rate that’s fair, I’m completely satisfied,” he said.

Small-to-midsize local banks—many of them publicly traded companies—were hit hard during the credit crash, with hundreds going out of business. But recent increases in their mortgage business are helping to boost balance sheets. Nonbank lenders, which often compete online, are also seeing big gains, and more of them are going public to raise more cash.

While new mortgage regulations going into effect next year may throw another wrench into the already tight lending landscape, smaller lenders seem poised to profit. Fewer loan products may be available today than during the housing boom, but borrowers have a growing number of options for getting a loan—and new competition among more lenders can’t hurt.

By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick.

Questions?Comments? facebook.com/DianaOlickCNBC

Article source: http://www.cnbc.com/id/101253229

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