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20 | M R EP O RT FEATURE D epository institutions are struggling against declin- ing market share even as the demand for mortgage loans remains strong. But if they focus on their strengths—customer relationships—and ensure that their technology can provide the digital speed and ease of applying, processing, and closing borrowers have come to expect, they can compete effectively, according to analysts. In its August 2021 publica- tion, Data Point: 2020 Mortgage Market Activity and Trends, the Consumer Financial Protection Bureau noted: In 2020, a total of 4,475 financial institutions—banks, sav- ings associations, credit unions, and non-depository mortgage lenders— reported data on approximately 22.7 million applications and 14.5 million originations under HMDA. By contrast, in 2019, 5,508 financial institutions reported data on 15.1 million applications and 9.3 million originations under HMDA. Compared to 2019, the number of reporters decreased by 1,033, or about 18.8%, likely due primarily to the increase in the closed-end report- ing threshold that was implemented by the 2020 HMDA rule. Yet, though the number of reporting financial institutions dropped, the number of applica- tions and originations increased by 7.5 million, or 50%, and 5.2 million, or 56%, respectively, the CFPB said. The Changing Role of Depository Institutions A ccording to an industry report, U.S. non-depository institutions issued more than two thirds (68.1%) of all mort- gages originated in 2020, up from 58.9%, the smallest market share on record for the depository institutions. However, depository institu- tions can do a better job of hold- ing on to their current market share if they refocus their efforts on marketing effectively to their current customer base, under- stand and leverage their margins on loans, and use the technology tools at their disposal to ensure the efficiencies of their mortgage lending process, according to industry experts. "The independent mortgage bank market share tends to go up and down with interest rates and lending volume, particularly refinances," said Craig Focardi, Senior Banking Analyst, Celent. "So, I think the depositories can compete in the current market by focusing their technology automation and their business strategies around the purchase market." Those that have already invested in that technology will hold their own as interest rates go up, as expected, while those that have yet to make those investments will struggle until they do, Focardi added. Many of the challenges that lenders face, whether they be independent or a deposi- tory institution, are the same, said Tom Finnegan, Principal, STRATMOR Group. "The volume of mortgages that are going to be available is going to almost certainly shrink over the next couple of years versus where we've been in 2019 and 2020. We reached very high- volume levels in 2020. That's continued so far in 2021 as rates have remained low." With more demand than ca- pacity, mortgage companies and depository institutions were able to expand their pricing margins and revenue per loan higher than they typically have been able to, Finnegan added. "The challenge is that, at some point, margins are going to compress and volume is going to go down." The Labor Challenge D eclining volume presents a challenge to depository institutions because they tend to be a bit less nimble than the independent mortgage bankers, Finnegan said. "The independent mortgage bankers operate with a lot less capital, so they have to be nimble to keep their costs in line. So, they're more likely to quickly right-size themselves, if volume goes down. The banks have his- torically been less nimble in right- sizing when volumes go down." However, depository institu- tions see the coming downturn and are starting to get a better handle on their cost structures so they can respond accordingly, Putting Lending Under the Microscope MReport speaks with lending experts about the benefits of challenges facing depository lenders vs. nonbanks. By Phil Britt