Are Big Banks Done With Mortgages?

Between regulatory changes and the disappearance of former mortgage mainstays, the future market is looking very different from an origination standpoint, National Mortgage News reported last week.

Big players such as Bank of America and Ally Financial are paring down their business by cutting correspondent channels and other operations, the report notes, in light of heightened regulatory examination, a “dismal” housing market and bond investors’ lawsuits. Subprime lenders are all but gone.

Who stands to gain? Smaller lenders, according to the NMN report.

“Now some smaller competitors are stepping into that void and expanding, selling loans directly to the government-sponsored enterprises and even considering retaining the servicing of the loans they originate,” the article says.

“Given the cost to the large banks to service mortgages, we expect the smaller players to continue taking share,” NMN quotes from an analyst report by FBR Capital Markets’ Paul Miller.

In the reverse mortgage business, big banks have scaled back as well, with bank originations dwindling in the wake of Wells Fargo and Bank of America’s departures from the business. Bank of America sold off its servicing rights in December to Nationstar Mortgage in a deal totaling $25 million, essentially securing its exit entirely.

“Mortgage lending is the only scale business that can generate significant fee income, so it’s the only place left that community banks have [an advantage] against nonbank competitors,” Jim Deitch, the former CEO of American Home Bank, told NMN.

In spite of the void left by large banks, non-bank lenders on the forward side are gearing up for growth. One top-25 lender told American banker it has added 1,000 employees since 2008 and took in $100 million in correspondent loans in the first 10 days of December, following the closing of Bank of America’s correspondent channel.

“We’re picking up where all the banks pulled out and that’s where a lot of our growth is going to come from,” the lender said.

Read the National Mortgage News article.

Written by Elizabeth Ecker

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