Connect with us

Large Banks Lose Share of Mortgage Business to Smaller Lenders

Investment

Large Banks Lose Share of Mortgage Business to Smaller Lenders

Large Banks Lose Share of Mortgage Business to Smaller LendersWells Fargo and JP Morgan Chase, the two largest mortgage lenders in the U.S., are feeling the sting from smaller firms as mortgage originations drop at the fastest rate in three years. While large banks still dominate the mortgage market, their dominance is waning with smaller lenders, some of them very new, grabbing market share.

New loans at Wells Fargo fell 38% to $50 billion in the 4th quarter, while originations dropped 42% to $23.3 billion at JP Morgan Chase. This far outpaces the 27% fourth quarter drop projected by the Mortgage Bankers Association.

Large banks are dealing with increased competition as well as a significant drop in mortgage refinancing after the Federal Reserve announced it will reduce its monthly bond purchases to allow rates to increase. Refinancing helps large lenders primarily due to their size and the scale of their mortgage servicing platforms, and they will be forced to change operations as the market changes.

Smaller lenders are being helped by a market that’s shifting from refinances to home purchases, allowing firms to capture the attention of home buyers, according to Clifford Rossi, a former Citigroup risk manager.

“A lot of these guys are using the internet and social media platforms to reach borrowers more directly,” he said. Because of their “ability to be more nimble and opportunistic in the marketplace, you will see more companies like that able to do more.”

Fourth quarter figures from Wells Fargo and JPMorgan suggest the banks lost 4% in market share, while PennyMac Mortgage Investment, NationStar Mortgage Holdings, and Ocwen Financial have increased business over the last year.

Many of these smaller lenders offer more aggressive pricing to increase market share. Small lenders have also captured more business as new financial regulations force large banks to pledge more capital for the servicing rights they hold.

In 2010, the top ten originators held 80% of the primary mortgage market, according to a report by Fannie Mae. Only 5 of the mortgage originators in the top 20 in 2006 are still in business. With many large lenders withdrawing from the market, their share has dropped to 60% of the mortgage market.

Top lenders are also letting go of workers by the thousands as refinancing demand drops, while smaller lenders pick up steam.

First Choice Loan, founded in 2010, is a good example of this trend. Its loan origination volume grew from $1.2 billion in 2011 to $2.26 billion the next year; it’s expected to have reached $2 billion in 2013.

LoanDepot, an independent retail mortgage lender founded in 2010, has seen average year-over-year growth of 300%.

Many small lenders credit local expertise and an emphasis on customer service as leading reasons for their rapid growth.

Fannie Mae predicts this market shift is temporary, and large lenders still have a large advantage, in part because they can spread fixed costs across a bigger volume of transactions. As the market improves and concerns about risk lessen, major banks will probably take back their market share.

Continue Reading
You may also like...
Comments

More in Investment

Newsletter


Refinance at
Loan Type

Please enable JavaScript for the best experience.


Mortgage Rate Averages
Free mortgage rate averages by Bankrate.com

Trending

Technology

To Top