The big 3 mortgage issuers (JP Morgan Chase, Bank of America and Wells Fargo) saw their share of new loans drop from 50% in 2011 to 21% in 2016. Today, 6 of the top 10 lenders are non-banks. Why the change?
Following the housing collapse of 2008-09, many large banks exited the business deeming borrowers under a new regulatory regime as too risky. Still approving perfect 30-year conventional mortgages whose borrowers who fit neatly into a box (and jumbo mortgages for higher earners), they made a business decision to abandon the rest of the market. The result has been the rise of non-banks such as Quicken Loans, PennyMac Financial, Freedom Mortgage and more who, according to Michele Lerner of the Washington Post, “are a little more nimble and can offer more loan products”.
Non-banks are regulated in every state and today operate on a level playing field with traditional banks which has encouraged their entrance into the market. Non-banks originate more FHA loans (mortgages that go to first-time homebuyers and higher risk borrowers) due to the lack of offerings from the big banks. This is a huge benefit to consumers (and the economy) because of the opportunities provided to borrowers who are not perfect.
For my refinance this past Fall, I decided to skip the big banks and for-profit ones for my state credit union whose trustees are volunteers and whose mission is to serve Vermont and local communities. The mortgage servicing process wasn’t entirely smooth but then it never has been with any lender I’ve ever used. All paperwork was serviced, confirmed and approved online. The closing was the only time we arranged a meeting where the attorney came to meet us.
At the end of the day, I had my conventional 30-year fixed mortgage at 3.25% with a credit union that also helps me buy my heating oil at a substantial discount via a member group purchase plan. No big bank ever provided me with that kind of service.