TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/522162
18 | Th e M Rep o RT cover story risk-taking and weaker lending stan- dards simply to grow market share. In fact, nonbanks, regional banks and less traditional plat- forms mostly provide the same products as institutional banks, leaders in the space say. The story of nonbanks has been reported with negative over- tones as of late, but in reality, the space is entering into a relatively positive period. "The real story is not banks versus nonbanks," explains Joe Anderson, CEO and chairman of Caliber Home Loans. Instead, he sees large money-center banks losing share as regional banks and nonbanks pick up the slack. Anderson has read countless articles claiming all of the changes are credit-related, but he disagrees. "We are originating to the same guidelines," he explained. The difference, Anderson says, is non- banks figured out how to leverage growth in the purchase money segment, and the large money center banks "never distinguished between purchase and refi." "When refi went away it ex- posed them, and then activity died off," the Caliber executive explained, adding that regional banks picked up some of the slack and are partly responsible for the market shift. "Large banks are losing share, and some of it is punitive because of the past," Anderson said. "It is not a shift because credit quality is breaking down. Some of the intel- lectual capacity in the industry has moved from the large banks to the nonbanks and regional banks." Ultimately, Anderson views the change as a positive development for consumers. "The more people in the mort- gage business, it gives consum- ers choices, creates capacity, and ultimately improves service levels," Anderson explained. Nontraditional banks in many ways remain more risk-adverse when compared to mega banks since these institutions depend heav- ily on the secondary mortgage mar- ket, Brandt Schumacher contends. "We target the borrower that wants to buy a home and have a good experience," she noted. "It is offensive actually that there is a belief that non-bank lenders are targeting borrowers that could not work with a bank. We compete against the banks for the same exact borrowers." Brandt Schumacher added, "Loosening credit is not the way we do that. In fact, it is banks that have balance sheets and have the ability to loosen credit if they choose. Non- banks have to sell their loans, and there is not a robust private securiti- zation market. That means, we sell to the agencies and government and must adhere to the same standards as all lenders must—bank or not." SECU president and CEO Blaine notes that credit unions can offer options that other lenders cannot. "Since we originate and service our portfolio, we have greater flexibil- ity—we can handle qualified and unqualified mortgages alike." Richard Morris, SVP of Real Estate Lending at Navy Federal Credit Union (NFCU), agrees. "We provide loans customized to meet the unique needs to our members. For example, we have offered several 100 percent financing options with no mortgage insurance. These products are particularly helpful for military families and millennials." In 2014, NFCU financed more than 24,000 purchase transactions for $5.9 billion, an all time record for the credit union. Fifty-five percent of these loans went to first time buyers. Thus far in 2015, NFCU has closed more than 16,000 loans totaling more than $4 billion, Morris says. Is the Private-Label Securitization Market Ready for Nonbank Lenders and for a Massive Buying Spree? A lthough nontraditional lenders stand to benefit from falling originations at big banks, a giant white elephant remains in the room: the ques- tion of whether the private-label residential mortgage-backed se- curities market has revived itself enough to consistently acquire loans from nonbank institutions. The answer to that question is partly yes, and partly no. On one hand, investors are hungry for yield and deals are getting done, experts say. But there's still a con- fidence issue haunting investors on the private-label side. Raj Date, a former deputy director of the Consumer Financial Protection Bureau and founder of advisory and investment firm Fenway Summer, makes strategic investments in financial services platforms. One of his start-ups is nonbank lender Ethos Lending. The company is doing around $100 million in originations a month, which includes a mix of agency and non-agency loans. While there's a desire for a strong private-label RMBS market to grow the non-agency side of the Ethos business line, the scale to do so in a dramatic way is not there yet, according to Date. "We are not a bank, that means scaling in non-agency produc- tion is going to require receptive capital markets," Date says. The reemergence of a strong private- label mortgage-backed securities market requires a number of things to be in place–including trust between among investors, trustees, and servicers. Unfortunately, that trust has not been re-instilled yet. And until that the Big surrender CommeRCial banks sTep down as dominanT playeR in moRTgage oRiginaTions, make way foR independenT banks L arge depository commercial banks served as the foundation for all mortgage origination activity just a short seven years ago, represent- ing 72.4 percent of all origination volume in 2008, according to data collected as part of the Home Mortgage Disclosure Act (HMDA) and released to TheMReport by the Mortgage Bankers Association. By 2013, the most recent HMDA data on record, shows depository commercial banks made up only 59.4 percent of all origination volume– a sharp 13 percent drop from 2008–while non-banks grew to represent 35.9 percent of all originations. The big story is not about mega banks losing market share; it's about independent banks now taking a larger slice of the originations pie. In 2008, non-depository (independent mortgage banks) made up 22.9 percent of all mortgage origination activity–a share that has grown to 35.9 percent since the latest data was recorded in 2013. While total origination activity for commercial banks and independent mortgage banks came in higher overall when comparing 2013 and 2008 data, independent banks still outpaced commercial banks in terms of growth. Back in 2008, independent banks produced only $297.3 billion in origi- nation volume, compared to $630.2 billion in 2013. Meanwhile, growth among depository banks remained anemic compared to years past, with commercial banks originating $942 bil- lion in origination volume back in 2008 and only $1.042 trillion in 2013. During this seven-year span, total origination volume improved at both types of institutions, but big banks are no longer the dominant force in the market and have clearly surrendered a part of their originations footprint to independent mortgage banks.