The market share of non-depository, independent mortgage companies tumbled after the Great Recession with the collapse of the mortgage and secondary markets—especially those companies that were focused on subprime lending. In 2014, the market share of independent mortgage companies rose to 47 percent for home purchase loans and 42 percent for refinance loans, the highest those shares have been at any point in the last 20 years, meaning nonbank mortgage companies have more than regained their market share they lost due to the Great Recession.
In 2009, the peak year for industry concentration, the top five mortgage originators accounted for 62 percent of all mortgage loans; five years later, in 2014, the market share of mortgage loans for the top five firms had tumbled to just 34 percent, according to Freddie Mac.
While some have attributed the increase of the role of nonbank institutions in the mortgage market to nonconventional lending and a willingness to originate riskier mortgage loans, data from the Home Mortgage Disclosure Act showed that the increase has been broad-based across different loan types and demographic groups. There are several reasons why the large commercial banks have lost market share in the mortgage industry, according to Freddie Mac.
- The mortgage industry is less profitable for big banks due to increased capital requirements;
- Profitability for big banks in the mortgage market has been reduced due to increased regulation from the CFPB, which has increased big banks’ concerns about liability for missteps;
- Big banks are more cautious about lending due to bad memories over the 2013 representation and warranty settlements, despite the FHFA and GSEs taking significant steps to provide lenders more certainty about rep and warranty exposure
- Like Fannie Mae and Freddie Mac, big banks are still trying to resolve substantial legacy portfolios; high costs of servicing the troubled loans in those portfolios have caused some banks to reduce their participation in the mortgage market
“We expect the GSE share will continue to decrease over the next few years,” Freddie Mac wrote in the report. “Many lenders have signaled an increased willingness to hold loans in portfolio rather than sell them into the secondary market. The increasing market share of small banks and credit unions will support this trend. Historically, small banks and credit unions are more likely to hold conventional conforming loans in portfolio than large banks. We also expect jumbo loan originations to increase, boosted by solid house price appreciation, and the majority of these loans also are held in portfolio.”
The recent emergence of small Internet lenders, or “marketplace lenders,” is a development to watch, according to Freddie Mac; some of these marketplace lenders were launched using crowdfunding, but have begun to attract traditional venture capital. Millennials who grew up entirely in the digital age may be attracted to those marketplace lenders; the authors of the report said it is “entirely too early” to tell if this will be the case, but said they intend to watch it closely.