The fight over shrinking origination volume

First rounds go to the community banks

Although mortgage originations continue to contract, lenders are still open for business. And while community banks may seem at risk of losing out in this competitive space, that's simply not the case, industry veterans claim.

In fact, they're rather competitive.

"While big banks’ earnings were down, they were still pretty substantial,” said Ron Haynie, senior VP of mortgage finance policy for the Independent Community Bankers of America. "They just were not doing quite as much."

The refinance market has dried up and pulled back a lot from activity levels recorded a year ago, Haynie explained.

In their recent earnings reports, JPMorgan Chase (JPM) and Wells Fargo (WFC) both recorded significant drops in originations but still posted strong profit growth overall.   

Positive signs abound for community banks. These firms are not dependent on refinancing business since they never relied on that space, Haynie explained.  

"Community banks operate with a relationship model. They do not rely on third parties since they are locally based," Haynie explained. "But they are well positioned to be successful in the market in the coming year."

According to Haynie, community banks are starting to see more business in small towns as building activity picks up.

"Community banks will thrive in this atmosphere because the bulk of the refinancing goes to the bigger money banks,” said Dick Bove, an analyst with Rafferty Capial Markets.

The community banks have the local relationships that will help them gain business, Bove explained.  

But the same positive news is not industry wide.

While mega banks can offset the decline in originations, regional banks or lenders that focused too heavily on refinance applications will struggle to stay afloat, Haynie said.  

"The entire industry as a whole is coming to grips with the new mortgage lending rules and that will have an effect on all lenders. Some folks will be more conservative, which will have an effect across the entire marketplace," he added.

The Mortgage Bankers Association recently lowered its estimate for 2014 mortgage originations, revising it downward by $57 billion to $1.12 trillion.

Still, Haynie emphasized this number still represents a significant amount of business.


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