Big-Bank Share of Mortgage Origination Market Increases, But Not for the Reason You Think

Big Bank Share of Mortgage Origination Market

Despite slowly withdrawing from the mortgage market, America’s top-five banks saw their share of total originations rise in the first quarter.

America’s largest banks originated less residential mortgages in the first quarter, but their share of the overall pie increased – the latest sign that the origination market is shrinking.

The five largest U.S. banks originated $111 billion worth of residential mortgages in the first quarter, well below the previous quarter’s $143 billion, according to data from the Mortgage Bankers Association (MBA). Even as first-mortgage origination decreased, these banks saw their combined market share climb to 31% from 25% in the previous quarter.[1] Originations include first mortgages as well as refinances.

Wells Fargo topped the list at $59 billion in the first quarter. JPMorgan Chase came in at $22.4 billion. Bank of America, U.S. Bancorp and Citigroup originated between $3.8 billion and $15.5 billion.

Total originations in Q1 amounted to $361 billion. That represents a drop of 36% from the previous quarter.

The U.S. housing market has seen a sharp decline in origination volumes over the past six months following a series of rate hikes by the Federal Reserve. Since December, the central bank’s policy-setting board has increased the federal funds rate on three occasions. The Fed impacts mortgages rates indirectly as banks pass on the higher costs to their customers.

The Fed has been undeterred by a recent string of lackluster economic data showing a broad slowdown in the U.S. economy, including a sharp pullback in core inflation. Policymakers continue to expect three rate hikes in 2017. With two down, that leaves one more increase in the cards.

Big banks have been slowly receding from the mortgage market since Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act back in 2010. The landmark legislation was government’s principal response to the financial crisis. The heightened regulatory environment that came with it forced many big-name lenders out of the mortgage-lending industry.

Two months after coming to office, U.S. President Donald Trump issued an executive review of Dodd-Frank, where he vowed to “do a number” on the bill. Repealing or modifying Dodd-Frank is expected to encourage banks to increase loan making. It will also help credit-worthy borrowers, like small businesses, qualify for favorably priced loans.[2]

Nonbank lenders – often referred to as “shadow banks” – have thrived since the introduction of Dodd-Frank. Unlike the big banks, these lenders do not take federally-insured deposits from borrowers to make loans. They’re also more likely to lend to riskier borrowers who might otherwise not qualify for a traditional retail loan. As a result, nonbank lenders have accumulated a record share of the government loan market.[3] Nonbank lenders like Quicken Loans have also capitalized on financial technology (see: fintech) to streamline the application process and expand their footprint in the mortgage industry.

When it comes to mortgage lending, nonbank players have become the biggest source of competition for the traditional banking sector. Since the financial crisis, their share of the mortgage market has spiked to 43%.[4]

[1] Trefis Team (May 31, 2017). “Largest U.S. Banks Grab A Bigger Share Of Shrinking Mortgage Origination Market.” Forbes.

[2] Bob Ehrlich and J.C. Boggs (January 28, 2017). “The Next Repeal And Replace: Dodd-Frank.” Forbes.

[3] Octavio Nuiry (November 1, 2016). “Big banks cede market share to nonbanks.” Inman.com.

[4] Daily Fintech (January 6, 2017). “The $14 trillion mortgage market disruption game is about to start.”

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This article has been exclusively written for GoRion by...

Sam Bourgi

Sam Bourgi

Sam Bourgi has more than seven years of progressive experience in economic analysis, market research, public policy and the financial markets. He has a broad expertise in the financial markets, including commodities, real estate the foreign exchange. As a published author in both peer reviewed and industry research, Sam has covered topics ranging from mortgage-backed securities to consumer spending and labor. Sam's resume includes more than 40 government and industry publications, thousands of financial articles and hours of educational resources on personal finance and trading.

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