Bank of America (BAC) and other lenders are backing away from mortgage originations as smaller players, like PHH Mortgage (PHH), U.S. Bank (USB) and Quicken Loans, jump into the market to pick up the slack.
That’s the conclusion Paul Miller with FBR Capital Markets made in a report released Thursday. The FBR report says small originators are capturing market share on the origination side of the business while big banks remain hamstrung by servicing issues and repurchase claims.
Bank of America’s origination market share tumbled from 25% to 10% over the course of the past three years, the FBR report says. “This loss in share has accelerated in recent quarters as the company has exited the correspondent lending channel after inheriting the business from Countrywide and taking huge losses from repurchase claims,” Miller said.
While BofA is cutting back, PHH Mortgage has grown its origination market share from 1.6% to 3.8% over the course of the past four years. USB grew its share from 1.3% in 2007 to 3.5% today, and Quicken’s share of the market has expanded from 0.5% in 2007 to 2.1% this year, FBR Capital said.
Miller estimates BB&T (BBT) and Fifth Third (FITB) also have their sights on nabbing more of the origination market. “We expect the smaller players to continue gaining share as some of the larger players have left the market completely or have left the door open with less competitive pricing,” Miller wrote.
The report sees the origination market on a path toward continual change. Citing Mortgage Bankers Association data, FBR Capital says the origination market could decline as much as 28% in 2012 before experiencing a 17% increase in 2013. The MBA believes this drop will be caused by a decline in refinances from higher interest rates and a general refi burnout.
FBR Capital, on the other hand, thinks the recent revamp of the Home Affordable Refinancing Program could boost refi demand, allowing the origination market to retain a total value closer to $1.2 trillion in the coming year.
“Given the cost to the large banks to service mortgages, we expect the smaller players to continue taking share as capacity is taken out of the system,” the report concluded.
“In addition, the mortgage market could evolve even further as qualified residential mortgages (QRM), GSE reform, and servicing fee changes slowly work their way into the market.”
Write to Kerri Panchuk.
