Many traditional mortgage lenders have retreated from the business since new rules and higher standards were imposed after the financial crisis. Even with real-estate prices rebounding in California and other high-demand U.S. markets, cautious banks lean toward wealthier, lower-risk borrowers.
Private lenders and other upstarts are filling the vacuum. That means a small but growing slice of the mortgage market has shifted from mainstream banks to an informal, loosely regulated corner of property finance. These lenders can earn 8% and more on their money—the catch is they must stomach the risk of lending their savings to borrowers rejected by banks.
