In recent years, the mortgage market has a had a drastic change as big banks like JPMorgan, Bank of America and Citibank have moved out of the market and nonbank lenders such as Quicken and LoanDepot have moved in.
This revolution of the market has gone unchallenged, however, that might be about to change if the Trump administration changes the regulations. The Trump administration could remove regulations on the big banks and stop sending bad loans back to the bank for repayment, which would open the doors for big banks to move back into the market.
Paul Miller, a banking analyst at FBR Capital Markets, said he believes big banks will return to the mortgage market, “but they will need solid protections on reps and warrants,” (the financial due diligence that is done on both sides of the transaction before a deal can close). Miller also added that banks will also need rules concerning the ability to repay bad loans to be relaxed for them to return to the market.
In 2010, only 10 percent of the market was nonbank lenders, now nonbank lenders make up half of the market, according to Inside Mortgage Finance.
Aside from Wells Fargo, who is the largest mortgage lender by a wide margin, big banks have become far less competitive in the overall mortgage market. Big banks have had to shell out billions of dollars in fines and legal settlements resulting from the financial crisis, which has caused them to become less competitive.
“It’s become very unattractive from a regulatory perspective,” Josh Rosner, managing director at Graham Fisher, said.
Big banks have also continued to bear the weight of mistakes in underwriting, leading them to have to charge slightly more for home loans to protect themselves.
While the Trump administration has not put any specifics forward yet, the banking sector is expecting changes in some of the more stringent rules put on mortgage lending.
“I fully expect that the banks will also step up their exposure to lending a lot more, and I expect it to be more from the regional banks than from the major banks in terms of the sequencing of how lending will grow,” said Sanjiv Das, CEO of Texas-based Caliber Home Loans.
Unfortunately, despite a possible change in regulations, the continuous rise of mortgage rates will take overall mortgage origination volume down in 2017. The refinance volume is already down at half the level it was a year ago. Meanwhile, home sales are expected to rise slightly, but not enough to make a huge difference.