According to new research from The Mortgage Bankers Association (MBA), increasingly homebuyers are eschewing the traditional “big” national banks in favor of smaller, leaner non-bank lenders. Additionally, lending is rapidly becoming much more decentralized than in previous years. For example, at the height of the real estate boom in 2007, commercial banks originated close to three-quarters of all mortgages (74% to be precise); by 2012, that figure had fallen to just 52%. While credit unions saw their share increase from 3% to 5%, the big gains have been from non-bank lenders (financial institutions who don’t hold deposits), whose market share has nearly doubled, rising from 23% to 43% in just five years.
But why the shift in the market? Why have banks given up so much potential revenue? MarketWatch reports that many banks are choosing to exit the mortgage business due to new regulatory pressures and other market challenges. One bank CEO was flatly stated that “We can’t make money in the business. We realized that this was the lowest-margin, most volatile business we had and we decided that we should exit.”
As noted above, the mortgage industry is also becoming much more decentralized. According to Inside Mortgage Finance, the nation’s top 10 lenders accounted for 54.4% of all mortgages in 2012; last year their originations totaled just 28.6% of all home loans.
To the average consumer (and prospective homebuyer), this should come as welcome news. More lenders (and different types of lenders) are competing for your business and have added motivation to find new and innovative ways to extend mortgage credit. Additionally, mortgage underwriting remains rock-solid – default rates are extremely low, and average credit scores have ticked up a bit in recent months. Non-bank lenders operate under the same regulatory constrictions as banks, so a loan from an independent lender is just as safe as a bank-originated mortgage.
Bottom line: when you and your family decide you’re ready to buy a home or refinance, don’t assume that your options are limited to the big-name banks – do your homework and consider the merits of doing business with a mortgage specialist at a non-bank lender. Click here to read more.