Market conditions today likely give banks an edge over non-banks when it comes to offering certain mortgage products, according to analysis by Jim Cameron, senior partner for mortgage advisory firm STRATMOR Group. In fact, the conditions are favorable for leading banks to win back some mortgage market share lost to non-banks during the refinance boom, Cameron writes in STRATMOR’s December Insights Report, in his article, “In Times Like These, It’s Good to be a Bank.”
“HMDA data shows that bank share has dropped from 76% in 2010 to 37% in 2021, and there are many reasons for this shift,” says Cameron. “But in today’s extremely challenging market, banks may have an opportunity to regain some market share from non-banks by leveraging their liquidity and capital to offer products that non-banks are simply not able to offer.”
There are a variety of factors that tilt the scales in favor of banks, according to Cameron. Key factors include the level of interest rates, the trend line for rates, the regulatory environment, capital requirements, and the mortgage servicing rights market, just to name a few. Cameron identifies several products that create advantages for banks in the current market. In many cases, banks are just better positioned to deliver the loan products customers need now.
“In times like these, it is normal for lenders to look to additional product categories to find ways to increase loan production volume. When thinking about the different product choices out there, whether it is HELOCs, non-QM, construction, ARMs or non-core non-agency loans, banks have real advantages over non-banks,” Cameron says.
But Cameron also notes two factors negatively impacting bank lending. First, many banks have avoided FHA lending, as the seemingly random enforcement of the False Claims Act creates unquantifiable, and therefore unacceptable, risk for many financial institutions. This does not help banks when they are competing for their fair share of the first-time homebuyer market.
Second, Cameron says banks have all but abandoned the wholesale channel as they are generally not comfortable that they can manage the risks. While that is perfectly understandable, it negatively impacts banks’ market share as the wholesale channel has been trending up, driven by a handful of large non-bank lenders.
Even with their advantages in the current lending environment, Cameron stops short of suggesting that banks might suddenly overtake non-banks in market share.
“That’s not likely,” he said. “But by leveraging their natural advantages in certain product segments, banks may be able to regain at least a modicum of lost market share from non-banks in the near term.”
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