Non-bank lenders dominate the mortgage market

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In 2020, Americans have taken out more mortgages than ever before. Most of them were not received from banks.

According to industry research firm Inside Mortgage Finance, non-bank mortgage lenders in the United States issued 68.1% of all mortgages issued in 2020, up from 58.9% in 2019. This is their highest market share ever and their biggest annual growth rate since 2014.

Non-bank mortgage lenders gaining strength on banks over the past decade. These lenders, which do not accept deposits or offer other banking services, have made up more than half of the market since 2016. As of the end of 2020, seven of the top 10 US mortgage lenders were non-banking organizations, according to the research firm.

IN coronavirus pandemic ushered in an era of cheap money that accelerated its growth. Average rate on a 30-year mortgage fell below 3% for the first time recorded last year, leading to an increase in home sales and triggering a refinancing boom. Lenders of all stripes have pledged a record $ 3.83 trillion in home loans in 2020, according to the Mortgage Bankers Association.

But banks have mostly boomed. Still suffering huge losses on bad mortgages during the 2008-2009 financial crisis, they shunned all but the most reliable borrowers and abandoned the giant loans that have fueled their mortgage business in recent years. Meanwhile, a sharp rise in demand for loans from corporate borrowers worsened their balance sheets.

Non-banks have filled this gap, especially borrowers seeking refinancing. IN

Rocket

Lending to Quicken Loans, the nation’s largest mortgage lender, more than doubled in 2020, compared with a less than 10% increase in the runner-up.

Wells Fargo

& Co., according to Inside Mortgage Finance.

“In the early part of this decade, independent mortgage bankers were mainly increasing their share of the buying business,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “But over the past few years, they’ve also acquired most of the refinancing business. This is a continuation of this trend. “

The outlook for nonbanks hasn’t always been so bright. When millions of Americans signed up defer mortgage payments Last spring, non-bank lenders struggled to cover payments owed to investors who buy their loans. Later, the Federal Housing Finance Agency took action to ease the monetary crisis. payment limiting mortgage services must cover for borrowers who are overdue on their loans.

By the summer, non-banks were lining up to go public, taking advantage of the hot stock market to raise funds from investors. Between July and December, eight of the 30 largest US mortgage lenders:including the rocketthey said planned an initial public offering

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The past year has been a successful year for increasing market share. Low mortgage rates and shifts in where Americans work, and a vibrant demand for home loans, allowing lenders to select the best qualified applicants and maintain a high rate of return.

According to Piper Sandler Cos, the median profit margin – a measure of how much lenders earn from selling loans – rose to 3.05% in the second quarter of 2020.

Nonetheless, lenders are preparing for the demand for mortgages cool off in the coming months, the result of an increase in interest rates, which makes refinancing less attractive for a large number of borrowers. According to the Mortgage Bankers Association, mortgage loan volumes will fall more than 9% in 2021 to $ 3.47 trillion.

There are several key players in the US mortgage market that play an important role in this process. Here’s what investors need to understand and what risks they take when investing in the industry. Telis Demos from WSJ explains. Photo: Getty Images / Martin Barraud

Write to McCaffrey’s eagle orla.mccaffrey@wsj.com

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