Mortgages: A Big Push From Small Lenders

Big banks like Wells Fargo and Bank of America still rule the mortgage market, but their collective dominance has waned considerably over the last three years. Smaller lenders, some of them quite new, have stepped in to grab market share, often by emphasizing customer service and local expertise.

As of 2010, the top 10 originators held 80 percent of the primary mortgage market, according to a report this month by Fannie Mae. But only five of the mortgage originators that ranked in the top 20 in 2006 are still doing business today. And because so many large lenders have withdrawn, their share as of the first half of this year had dwindled to 60 percent of the market.

Moreover, as refinancing activity dies down, the remaining top lenders are shedding workers by the thousands.

Meanwhile, smaller lenders are picking up steam. “What we’re seeing is the community banks and regional market lenders taking a larger market share of residential business,” said Norman Koenigsberg, the president of First Choice Loan Services, a Morganville, N.J., subsidiary of First Choice Bank.

Founded in 2010, First Choice Loan is a case in point. Its loan origination volume grew to $2.26 billion in 2012 from $1.2 billion the previous year; the company will very likely end 2013 around the $2 billion mark, according to a company spokesman.

Mr. Koenigsberg attributes the growth to the company’s hiring of “qualified talent” in regional markets, and to a strong focus on purchase mortgages. Local knowledge is especially important to borrowers in competitive and often complex real estate markets like those in and around New York City, he added.

“You have multiple buyers interested in a smaller selection of properties,” he said. “Realtors and attorneys have educated their clients: Make sure you have your financing lined up with a reputable organization that’s going to walk you through the process.”

LoanDepot, an independent retail mortgage lender headquartered in Foothill Ranch, Calif., was also born after the housing crisis, in 2010. Since then it has seen average year-over-year growth of 300 percent, according to Anthony Hsieh, the chief executive. And customer service, he says, is paramount.

“Our average close time is a little more than 30 days,” he said. “We return your call in an hour. If not in the same day, employees get terminated.”

About 60 percent of the company’s business comes via the Internet or phone. The rest comes through the doors of its 60 branch locations, spread across 10 states.

“We’re going into a down year next year,” Mr. Hsieh said. “Loan volume is going to be less than this year, driven by the rise in interest rates. But nonbank independents, such as us, will continue to play a significant role.”

The Fannie Mae report predicts that this market shift is only temporary. Large mortgage lenders still enjoy a significant competitive advantage, in part because of their ability to spread fixed costs across a high volume of mortgage transactions. And as the housing market continues to improve, and risk concerns lessen, major bank lenders will again take back market share, researchers say.

But right now, there aren’t that many major bank lenders out there, Mr. Hsieh said. And on the nonbank side, there are none. Even Quicken Loans, the large independent online lender, holds around a 4 to 5 percent market share among all residential lenders, according to National Mortgage News. “America cannot be housed with just bank lenders,” Mr. Hsieh said. “Nonbank lenders are extraordinarily important, which is why you’re starting to see investment in new companies.”


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