May 2016 - Rise and Fall

TheMReport — News and strategies for the evolving mortgage marketplace.

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16 | TH E M R EP O RT COVER STORY By Phil Britt T here's a reason why big lenders tend to grab much of the notoriety as markets rise and fall sharply. Good or bad, the big lenders prop up the U.S. economic engine as they naturally possess more market share. According to the American Enterprise Institute's (AEI) International Center on Housing Risk, Wells Fargo alone owns 14 percent of all mortgage originations. And at one point, the top U.S. banks controlled 85 percent of the origination market. So it shouldn't be a surprise when net revenues wallop, like they did in the first quarter of 2016, consumer (and investor) confidence, employment gains, and economic growth. But what happens when non-bank lend - ers start gunning to seize more market share? David Is Goliath D uring the housing market's gyrations over the last few years, big lenders, including Wells, Bank of America, JPMor- gan Chase, U.S. Bank, Flagstar, Suntrust, and USAA, lost much of their business to non-banks. Whether by design or through consumer choice, non-bank lend- ers now control a majority of the nation's mortgage business, according to Edward Pinto, AEI's Co-director and Chief Risk Of- ficer. Pinto says the business went to a very widely distributed set of non-bank lenders. Quicken Loans, the largest of non-banks, has only 2.5 percent of the mortgage origi- nation market—less than one fifth of Wells Fargo's business. Though big lenders certainly continue to dominate, there are success stories and special programs that lenders of various sizes can point to—and perhaps lessons that both the Davids and Goliaths can glean when mort- gage activity starts to fall. Big Lenders: Sheer Size Allows for Flexibility in Product Offerings T hough the internet habits of Generation Z and rapid transitions in technology have made it possible for even small, rural lenders to provide mort- gages anywhere, much of the mortgage origination activity is dominated by behemoths like Wells, BofA, Citibank, and PNC, which had been among the top national lender list a decade ago, have de-emphasized their mortgage lending, com- pared to other national lenders. And even more recently, JPMor- gan Chase sold its rural housing business to Freedom Mortgage, a decision a spokesperson says aligns with the company's overall strategy to simplify its mortgage business. Sheer size enables these big lender banner decisions and helps companies pivot quickly when launching programs that are beyond the means of smaller depository institutions and non- bank lenders. Bank of America, Self Help, and Freddie Mac: A Calculated Partnership For Low- and Moderate-Income Borrowers F or example, Bank of America launched its new Afford- able Loan Solution mortgage [NOT] All Originators Are Created Equal The Rise and Fall of Large Lenders and the Role of Non-Bank Mortgage Originators

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