Although Wells Fargo (WFC) accounts for 30% of market share on paper in the origination and refinancing market, the company’s mortgage origination volumes are flat and expected to remain that way, according to FBR Capital Markets.
In 2010, Wells Fargo had a little under $400 billion in mortgage originations, down 25% from 2003. The company has done between $300 billion and $500 billion of mortgage originations throughout the last couple of years.
Since 2005, about $1 trillion of mortgage origination capacity was lost as a result of Bank of America (BAC) exiting the business and closing down Countrywide, JPMorgan Chase (JPM) closing down Washington Mutual’s mortgage operations as well as Citi (C) and GMAC’s (GMA) role in the market.
Wells Fargo is the only active player to maintain its size throughout the process and has become the largest mortgage player in the space by default. The company has not expanded over the past five years outside of purchasing Wachovia.
Click on the graph to view the top five originators from 2005 to now.
Although the company’s market share has almost doubled over the past seven years, it was not due an increase in originations, which grew 4% holding to about $500 billion.
While Wells Fargo represents 50% of correspondent lending the company has stated that it’s not interested expanding its market share.
"We believe that Wells Fargo will not be able to meaningfully add further scale to its business given regulatory restrictions around hiring lenders," stated the report.
With the financial crisis resulting in $1.3 trillion in annual mortgage origination leaving the market, smaller players are expected to be the driving forces.
Over the next two years, 60% of the market under the mortgage-centric model will focus on mortgage lending to borrowers that aren’t a part of the large originators including HomeStreet (HMST), PHH Corporation (PHH) and Sterling Financial Corporation (STSA).
The remaining 40% of the market will include big bank companies such as JPMorgan Chase and Wells Fargo under the economies-of-scale model, which will dominate the conforming retail channels and take advantage of large service centers.
"We believe the largest opportunities in mortgage originations are with a smaller, mortgage-concentrated model. This model will allow lenders to have the appropriate local knowledge to understand their market risk while maintaining the necessary regulatory quality controls," stated the report.