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WSJ: Small Mortgage Lenders Own the Market

Smaller lenders are seeing an opportunity to gain market share as more big banks scale back their mortgage lending operations, according to an article from The Wall Street Journal (WSJ). 

As of the third quarter of this year, smaller mortgage lenders have held a 60% market share of the U.S. origination market, an increase from 39% in 2009, according to data from Inside Mortgage Finance referenced in the WSJ article.

Tightening credit standards, coupled with lengthy loan processing times and costly capital rules have been driving factors in big banks’ declining market share, according to the WSJ, as larger institutions have shied away from buying loans from other lenders or mortgage brokers. 

In efforts to reduce their home loan divisions, larger players like Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. have cut more than 10,000 mortgage-related jobs as they faced increasing regulation and a decline in refinancing activity.

Smaller players like the privately held Foothill Ranch, California-based loanDepot.com have capitalized on larger banks shedding their workforce, as the company added 150 mortgage workers in June when it opened a new office in Dallas. The company also has plans to add 850 more workers in the next three years.

Though larger institutions have been scaling back operations, they are still powerful in the business, WSJ notes, specifically Wells Fargo, which had a 22.5% market share in the first half of 2013. On the other hand, Bank of America’s market share fell to 5.2% in the first half of the year, down from 21.6% in 2009, according to Inside Mortgage Finance‘s data. 

“Big banks began pulling out of certain mortgage businesses after new international rules required them to hold more capital for certain assets,” writes the WSJ.  “Big banks don’t have the same view of the value of those assets relative to the cost of capital today,” explained Jim Cutillo, chief executive of Stonegate Mortgage, in the article.

Read The Wall Street Journal article.

Written by Jason Oliva