Unless nonbank mortgage companies post a significant rebound in their third-quarter earnings Standard & Poor’s said it would have to take take further negative action on them.
Right now, S&P said in order to change its opinion nonbank’s would have to report either a rise in origination activity or a reduction in competition.
"We believe industry earnings are likely to remain weak unless supply contracts substantially as some of the originators that expanded during the boom exit the market, or unless industry credit standards ease materially, enabling more borrowers to obtain mortgages," said Standard & Poor's credit analyst Stephen Lynch.
"That's because even under optimistic projections for factors that have historically fueled mortgage demand, originations are likely to pale in comparison to the levels reached during the refinance boom of 2009-2012."
The refinance boom that fueled the market over the past five years has almost dried up, with the refinance share of mortgage activity only making up 56% of total applications according to the latest Mortgage Bankers Association report.
But during that time frame, new lenders entered the market in droves, and existing nonbank participants scaled up operations to meet the surge in demand.
This all changed in May of 2013 when the Fed announced that it would begin "tapering" its asset-purchasing program, leading to a significant increase in mortgage interest rates.
And while mortgage rates did drop back down, it has not created a renewed surge in refi demand, and as a result, mortgage originators are either exiting the market or increasingly turning their focus to the more stable purchase-money market to offset declines in refi activity.