Significant Milestone: Non-Bank Share Of Origination Volume Crosses 50%

In a significant milestone, non-banks originated more than half of the mortgage dollar volume in the U.S. during the third quarter, recent data shows.

According to a report in the Wall Street Journal (WSJ), citing research from Inside Mortgage Finance, non-banks represented about 51.4% of loan dollars as of September – up from 46.0% in 2015.

The big U.S. banks have been retreating from the mortgage market for several years now due to increased risk and a wave of new regulations that have made mortgage lending considerably less profitable. In particular, most large banks have retreated from originating mortgages backed by the Federal Housing Administration (FHA) due mainly to a series of costly lawsuits brought by the federal government in connection with lenders’ failure to properly follow FHA underwriting guidelines.

Meanwhile, new, non-depository institutions have moved in to pick up their share of the business.

According to the WSJ article, six of the top 10 mortgage lenders by origination volume were non-banks as of September. That’s up from four in 2015 and two in 2011.

Wells Fargo, J.P. Morgan Chase and Bank of America had a combined 6.1% share of the purchase market in the third quarter, according to a MarketWatch article citing origination data from ATTOM Data Solutions.

Meanwhile, non-depository institutions such as Quicken Loans, PennyMac Financial Services and Caliber Home Loans saw their market share grow considerably.

As both articles point out, this shift is leading to new concerns over whether the non-banks will be able to weather an economic downturn and a subsequent wave of defaults. Most of the loans these lenders originate are guaranteed by the U.S. government, which means taxpayers could be on the hook if these non-banks are unable to cover their losses.

Adding to the concern is the fact that many of these lenders are more aggressively pursuing the “underserved market,” which includes lower-income borrowers with lower FICO scores, as well as self-employed and seasonal workers who are not traditional W-2 wage earners.