Nonbanks hold mortgage market share lead in 2021 as volumes crash

Nonbanks maintained their large mortgage market share lead, ahead of a slump in originations that has lenders scrambling to cut staff and make it through leaner times.

Mortgages funded increased more than 8% from the year before to $4.761 trillion in 2021, according to S&P Global Market Intelligence data based on recently released Home Mortgage Disclosure Act information. An increase in purchase mortgages offset a modest decline in refinancing activity last year, according to the Consumer Financial Protection Bureau.

Now, a surge in mortgage interest rates is driving a steep decline in volumes that could reshape the field. Nonbanks have different funding strategies and regulatory oversight, and "many also view banks as more opportunistic due to the wider range of financial services offered by a bank," Compass Point analyst Giuliano Bologna said in a note on June 21. "This could result in a counter trend where non-depositories attract and recruit mortgage professionals from depositories."

Nonbanks stay on top

Commercial banks and thrifts again represented only seven of the top 20 lenders in 2021. Seven of the top ten spots went to nonbanks. Across the top 20, nonbanks had a 27.8% share of funded originations, compared with 11.6% for banks.

Wells Fargo & Co. unit Wells Fargo Bank NA remained in the third spot, behind nonbanks Rocket Mortgage LLC, a unit of Rocket Cos. Inc., and UWM Holdings Corp.

Wells Fargo's year-over-year increase in origination volume of 16.1% was overshadowed by UWM Holdings' 24.1% increase, but the bank gained compared to Rocket Mortgage's increase of 8.5%.

Wells Fargo is rethinking how mortgages fit into its business, President and CEO Charles Scharf said at an investor conference on June 1, citing regulatory and reputational challenges. He said the bank would focus on serving its customer base, which still requires significant scale, but "we won't be as large as we were historically."

"We don't think of it as a stand-alone profit generator where you have production and servicing balancing" each other, with the value of servicing typically rising with interest rates, Scharf added. "Those days are gone in terms of the right way to think about it inside our company."

JPMorgan Chase & Co. unit JPMorgan Chase Bank NA fell to fifth place behind loanDepot Inc. unit loanDepot.com LLC, which posted a 35.9% jump in funded loans year over year.

Better Mortgage Corp. and Home Point Capital Inc. unit Home Point Financial Corp. saw the highest year-over-year funded originations growth with increases of 140.1% and 81.1% respectively.

Freedom Mortgage Corp. and Flagstar Bancorp Inc. unit Flagstar Bank FSB lagged the industry as their volumes declined in 2021, dropping 9.8% and 7.1% year over year, respectively.

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Grim outlook

Lenders are bracing for a drastic slowdown in mortgage activity as the Federal Reserve raised its policy rate to fight inflation as mortgage rates have also jumped.

Refinancing originations already tumbled 60.2% from the year prior and 34.3% sequentially to $308 billion in the first quarter, according to estimates from the Mortgage Bankers Association. Existing home sales have also cooled as high home prices and mortgage rates have hurt affordability.

Overall, the Mortgage Bankers Association projects that total originations will fall to $481 billion in the first quarter of 2023, down from $689 billion in the first quarter of 2022 and $1.1 trillion in the first quarter of 2021.

"We are forecasting that if 30-year first mortgages pops 6% or tops 6%, the mortgage market is going to dry up very, very, very quickly," First Internet Bancorp Chairman and CEO David Becker said on the company's first-quarter earnings call. The weekly average 30-year mortgage rate ended June at 5.7%, according to Freddie Mac.