The rise of IMBs

Flexible, tech-driven IMBs takeover market share from large banks


When the Consumer Financial Protection Bureau released the 2019 Home Mortgage Disclosure Act data there was one key shift that was evident from the start – independent mortgage banks clearly stepped up their game. 

Wells Fargo, which had long held the No. 1 spot for mortgage originators, had fallen. Not only did Quicken Loans surpass the mega bank in total originations, which it had been doing for some time already, but United Wholesale Mortgage also surpassed Wells, placing the bank in a solid third place in terms of total originations. 

Quicken Loans announced in early 2018 that it officially surpassed Wells Fargo as the No. 1 lender in the U.S. Later, UWM announced it beat Wells Fargo in originations for small sections of the year in 2019, such as the first quarter and in April. UWM also announced it was on track to beat Wells Fargo in 2020 due to strong growth just before the COVID-19 pandemic. 

But these weren’t the only notable shifts in the most recent HMDA data. Fairway Independent Mortgage rose one spot to No. 5 on the list, with 147,000 total originations in 2019 versus 110,000 in 2018, while Freedom Mortgage saw a significant gain after it rose from No. 14 in 2018 with 58,000 total originations, to the No. 9 spot in 2019 with 110,000 total originations.

After Wells Fargo, JPMorgan Chase came in as the No. 4 lender. Three more nonbank lenders take over after that with Fairway, loanDepot and Caliber Home Loans taking over the next three spots before Bank of America files in at No. 8., followed by Freedom Mortgage. 

Comparing that to just a few years before, HMDA data shows that JPMorgan Chase, Bank of America and Wells Fargo all fell into the top 5 originators in 2016.

The shift is clear – borrowers are looking to independent mortgage bankers now more than ever, and the mega banks are falling behind. 

The 2019 HMDA report stated banks collectively originated 32.4% of all reported originations in 2019, with 2.6 million loans. Credit unions followed with 714,000 loans making up 8.8% of originations. Independent mortgage companies took the lion’s share in 2019, originating 4.4 million loans. That accounts for 54.5% of all reported loans, a drastic increase from 2008, when IMBs accounted for just 24% of the mortgage origination share. 

“Over the past few years, the share of loans originated by independent mortgage companies has increased sharply,” the CFPB said in June with the release of its report on 2019 HMDA data. “In 2019, these lenders originated 56.4% of first-lien, owner-occupied, one-to-four-family, site-built, home-purchase loans, down slightly from 57.2% in 2018 and up from just 35% in 2010.

“Independent mortgage companies also originated 58.1% of first-lien, owner-occupied, one-to-four family site-built refinance loans, an increase from 56.1% in 2018,” the report continued. 

Dependent on mortgages

During the early months of the pandemic, many lenders began adding overlays in order to combat risk brought on by the economic crisis COVID-19 wrought. As layoffs increased and the U.S. government ensured forbearance options would be available for anyone who needed it – even without showing proof of hardship – financial companies took action.

At UWM, for example, CEO Mat Ishbia dedicated about 400 staff members to re-verifying employment on the day of closing. But large banks put even stronger standards in place. 

In mid-April, JPMorgan Chase announced that it would require a 700 FICO score and a 20% down payment in order for borrowers to buy a home. And the mega bank also said these lending standards applied to its refinances on non-Chase mortgages.

Those changes do not apply to Chase’s DreaMaker mortgage program, which makes loans available for low-to-moderate income borrowers with as little as 3% down and reduced mortgage insurance requirements.

But for everyone else, buying a home got much harder – that is if they went through Chase. 

However, banks weren’t the only option for borrowers to choose from. Many IMBs continued to offer 5% down payment programs, 3% conventional options from Fannie Mae and Freddie Mac for first-time homebuyers and other low downpayment options. FICO score requirements remained at their usual levels and interest rates continued to tank – meaning borrowers could afford more house than before or see extensive savings on their monthly payment. 

Why were banks so much more stringent than IMBs? 

There may be many answers, but one important factor is the dependence of IMBs on mortgages in order to stay in business. If the housing market becomes difficult, banks can take a step back. IMBs, however, don’t have that option. 

“Independent mortgage banks are typically monoline companies, focused exclusively on providing home mortgage financing, mortgage servicing, and other closely related services,” the Mortgage Bankers Association said in a report. “They operate through all market cycles and across all delivery channels (retail, broker wholesale, and correspondent).

“The majority of IMBs are closely held private companies whose owners have made significant personal investments in technology and infra- structure — their success is tied directly to the success of the enterprise, providing ‘skin in the game’ and strong incentives to manage the business for the long term,” the report stated. 

Quicken Loans Vice Chairman Bill Emerson said in an exclusive interview with HousingWire that banks oftentimes will jump into quick decisions which they believe will mitigate risk. After a time, they will circle back and rethink the policy and assess the outcome, he said.

Serving the underserved

As banks continue to back away from the mortgage space, they are leaving one demographic underserved.

“More recently, IMBs have stepped into the void created as bank lenders retreated not only from government lending, but from the mortgage market generally, in the aftermath of the financial crisis.”

Mortgage Bankers Association

IMBs aren’t just taking over for conventional loans. They are also playing a major role in ensuring mortgages are available for first-time and low-income homebuyers. In 2018, IMBs accounted for more than 82% of FHA loans, 68% of VA loans, and 66% of RHS loans. More than 64% of minority homebuyers got their financing from an IMB in 2018. Further, independent mortgage banks originated more than 60% of all home purchase loans for low- and moderate-income borrowers.

As more homeowners enter the market including Millennials and even Gen Z, the technology investments and product offerings from IMBs have proven to be strong factors in attracting these borrowers and have helped increase their market share over large banks. 

“Depositories have simply changed their lending footprint,” Emerson said. “They backed away from a lot of FHA lending. They took their lending footprint only to where they typically have customers. And as a result of that, that left the market opportunity for the nimble independent mortgage bankers to come in and help consumers that still needed to get mortgage financing but weren’t able to get it from depositories.”

“For instance, independent mortgage bankers are lending more to low-to-moderate income folks than depositories and more to blue collar workers who are out there every single day working hard to make a living for their family,” Emerson continued.

“And we’re lending more to people of color, so now we have the opportunity to help others that the depositories are just not helping.”

Bill Emerson

Emerson explained that in the housing crisis years of 2007 through 2009, major banks made fundamental changes in their business models. Once these changes were made, many banks determined that those changes worked for them and since then banks haven’t held a major presence in the FHA or lower income borrower mortgage space. This then opened up the market for independent mortgage bankers. 

A focus on Tech

Emerson explained that there are three reasons why IMBs are excelling and taking over market share from depository institutions: their entrepreneurial spirit, their presence in the FHA and low-to-medium income borrower space and a strong focus on technology and innovation. 

“They’re much more technologically focused than depositories and that technology is really where consumers want to play,” Emerson said. “And I will tell you that if you think about COVID-19 and what’s happened and some of the transformations that have happened now where we really are having contactless closing and some of the things that technology has been able to advance for the consumer – I don’t see them wanting to go back. 

“As we continue to move forward that advantage from the technology perspective will be even greater for the IMB,” he predicted.

Emerson explained that because IMBs tend to be more entrepreneurial, they can react more more quickly to market changes and shifts in strategy. 

M&A and capital raises

More recently, a few IMBs have grown large enough to secure backing from private equity firms, arrange larger and more sophisticated commercial financing facilities, and raise capital as publicly held companies, the MBA explained in a report.

For example, Freedom Mortgage saw a significant gain after it rose from No. 14 in 2018 with 58,000 total originations, to the No. 9 spot in 2019 with 110,000 total originations. In 2019, Freedom Mortgage acquired J.G. Wentworth Home Lending, adding an additional 570 employees and 35 offices nationwide. This acquisition boosted Freedom Mortgage’s portfolio by $6 billion. 

The acquisition expanded Freedom Mortgage’s reach to several new markets, particularly in the mid-Atlantic region, where J.G. Wentworth has a strong presence. Based in Chesterbrook, Pennsylvania, J.G. Wentworth Home Lending originates more than $6 billion in annual mortgage volume and manages a $6 billion servicing portfolio.

But while IMBs have seen some increase in M&A activity, most growth in this sector has been organic, Emerson explained. 

“Take a look at those top lenders and those are organically grown,” he said. “For the most part, they’ve just done a great job of building up their platforms and continue to take market share.” 

“I’ll take us for example: Rocket Mortgage continues to build and grow and continues to help consumers at a record pace, so I think it has more to do with what I talked about, the main reasons why you see the growth, than it does with anything else,” Emerson said. “I don’t think that the M&A piece has had a lot to do with it.”

Marketing the brand

When it comes to getting their name out to consumers, IMBs have a battle to fight. Unlike many smaller IMBs, mega banks are household names. These mortgage banks work within their communities to get their name out and show consumers the technology and products they offer. 

“A lot of mortgage banks are local and in the community,” Emerson said. “As a result of that, they have a relationship with Realtors and they’re closer on the ground and so that’s where a lot of their business comes from.”

Emerson said that many IMBs don’t spend much advertising dollars on marketing, since they work by integrating with their communities and working closely with real estate agents. For larger lenders like Quicken Loans, they spend advertising money to build a brand. Since the launch of the company, Quicken Loans has spent $5 billion in marketing, including over $900 million for the year ended December 31, 2019, the company disclosed in an S-1 filing for its initial public offering. 

“Marketing is a big piece of what we do because we are not touch the ground like a lot of the other independent mortgage bankers and so our brand is important,” Emerson said. “Our brand drives people to us. Once they get here it’s the experience in technology, it’s the speed with which we call and it’s our scalability. That’s what gives us the greatest advantage.”

Like any other industry, IMBs must work to fight against the more well-known brands and increase their market share. 

And each year the HMDA data shows their hard work is paying off. Their market share continues to grow as more and more consumers look to IMBs to fill the gaps left behind by the traditional depositories. 

Through their innovation, technology and relationships, IMBs are building their brands and taking over the mortgage industry as the largest banks continue to slip lower on the list of top mortgage lenders.

But could big banks soon be looking to make a comeback? In mid July, Wells Fargo hired Kristy Fercho as its new head of Wells Fargo Home Lending.  A 2020 Woman of Influence, Fercho is one a well known and respected business leader in the mortgage industry, and could be an early sign of a shift at Wells Fargo to once again fight for market share in the mortgage industry.  

To read the full August issue of HousingWire Magazine, click here.

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