trending Market Intelligence /marketintelligence/en/news-insights/trending/lT_Ps2HMwmUg5KY4v8PUaw2 content esgSubNav
In This List

Nonbanks overtake banks in mortgages for 1st time since '06


Insight Weekly: Layoffs swell; energy efficiency PE deals defy downturn; 2023 global risk themes


Spotlight on sustainability How banks can overcome the challenges of achieving Net zero by 2050


Insight Weekly: Energy crisis cripples Europe; i-bank incomes rise; US holiday sales outlook


Japan M&A By the Numbers: Q3 2022

Nonbanks overtake banks in mortgages for 1st time since '06

For the first time since the lead-up to the 2008 financial crisis, nonbanks originated more mortgages than banks. However, some experts think it might be more of a blip than a long-running trend.

In 2016, nonbanks originated 50.5% of all mortgages by loan value, up from 47.6% the previous year and well above the trough of 31.9% in 2008. The nonbank portion includes nonbank units owned by bank holding companies.

SNL Image

Banks have been losing mortgage market share in recent years in part due to an intentional paring of certain government programs following multibillion-dollar settlements with the Justice Department.

Lenders faced fines for errors in the loan documents and incurred additional liability for loans purchased from mortgage brokers. Most famously, some of the largest banks exited certain programs such as loan insurance from the Federal Housing Administration. And a pullback from relationships with mortgage brokers furthered the diminution of bank market share, said Guy Cecala, CEO of Inside Mortgage Finance, a research and news publication that focuses on mortgages.

"Big banks all got out of buying loans from mortgage brokers for the same reason: There was liability. If you actually table-fund the loan and your name goes on the loan documents, you're considered the originator for purposes of liability," Cecala said.

With banks stepping back, nonbank lenders, including some that launched after the crisis, have won share. In 2016, LLC jumped into the top 5 of mortgage originators in just its seventh year of business. CFO Bryan Sullivan wrote in an email that the company's growth has been fueled by technological advantages that provide closings with speed and certainty of execution.

Other nonbanks making big jumps in 2016 included Blackstone Group LP-owned Finance of America Mortgage LLC, which quintupled its 2015 origination volume, and Provident Funding Associates LP, which doubled its year-ago loan value total.

Nonbanks and banks alike are subject to many postcrisis mortgage regulations, such as the Consumer Financial Protection Bureau's ability-to-repay rule. Still, banks face more stringent safety-and-soundness oversight via prudential regulators. Some consumer advocates are concerned by the resurgence of nonbank lenders.

"The increased market share of nonbank lenders emphasizes the importance of making sure all lenders abide by the same rules to protect consumers," analysts at the Center for Responsible Lending wrote regarding the recent data from the Home Mortgage Disclosure Act.

Nonbank gains might be a temporary trend. Declines in mortgage rates during 2016 allowed for a couple of refinancing waves, such as a dip in rates after the United Kingdom voted to exit the European Union. This year, rates have stayed relatively higher, meaning the mortgage market has shifted toward purchase activity, which tends to favor banks.

"Being a depository is more favorable, in some ways, than a nondepository in a purchase market since [depositories] have other revenue sources and they can take a holistic view of the customer relationship," said Marina Walsh, vice president of industry analysis for the Mortgage Bankers Association.

Further, banks have pre-existing relationships with customers and can leverage affinities with the brand. "Penetrating the purchase market is challenging, and penetrating the digital purchase market is even more difficult. A new home purchase is more emotional and has traditionally involved more face-to-face interactions," loanDepot's Sullivan wrote in an email.

Since the Home Mortgage Disclosure Act data does not release for nine to 10 months after year-end, it will take some time to see if banks have, indeed, won back the mortgage market from nonbanks. But the shift toward a purchase market appears clear, and banks are well-positioned to take advantage. Walsh said the Mortgage Bankers Association projects refinance activity will account for 34% of all mortgages in 2017, down from 48% in 2016. By 2018, the industry group projects refinance mortgages will account for just 26% of mortgage activity.

With revenue from refinancing falling, Cecala said many banks have waded back into government programs, including loans insured by the Federal Housing Administration.

"The banks focused on jumbo lending after the crisis. It seemed like a no-brainer," Cecala said. "Now, they're seeing there are limits on how much they can grow that business."

SNL Image

SNL Image

S&P Global Market Intelligence compiled the rankings using data collected under the Home Mortgage Disclosure Act.

Click here to run custom mortgage market share reports at the national, state, county or MSA level.

Mortgage market share data is also available on each lender's briefing book page under the market analysis section.

Did you enjoy this analysis? Click here to set up real-time alerts for data-driven articles on the U.S. financial sector.