NEW YORK–Just how the role of big banks in mortgage lending has changed was evident in a statement from Bank of America reporting its first quarter revenue.
“The revenue line that once regularly topped $1 billion a quarter is now so small that the company…lumped it into ‘all other income’ from its consumer bank,” noted Bloomberg in its analysis.
In his own analysis of the change, Justin Burch, managing director at the Collingwood Group, observed, “While it may seem like a simple change in revenue recording, the mortgage industry has had a front row seat to witness the transformation of mortgage banking income from once being considered a profit center for traditional large banks and depository institutions, to now only being recognized as "other income."
Collingwood Group noted that in recent years banks have surrendered increasing levels of mortgage market share to nonbank mortgage lenders, with the company noting that in 2017 nonbanks originated roughly 60% of all single-family mortgages.
Despite a slight dip in February 2018, the nonbank origination share of Federal Housing Administration (FHA), Department of Veterans Affairs (VA), Fannie Mae and Freddie Mac loans has risen steadily since 2013, said Collingwood Group, which further cited an Urban Institute report from February 2018 that found nonbanks accounted for approximately 76% of Ginnie Mae (FHA and VA) securitizations. The nonbank origination share of Fannie Mae and Freddie Mac securitizations was 50% and 52% respectively, added Collingwood Group.
“The persistent trend towards nonbank originators has many asking, will banks ever view mortgage lending as a profit center again or will it simply be viewed as an accommodation to retail banking customers?” said Burch.
According to Collingwood Group, one area that could see an increase in bank participation is FHA lending. Nonbanks currently dominate FHA lending, originating more than 80% of all loans.
“As a result of heightened regulatory risk, many large banks have fled from FHA programs in recent years,” said Burch. “This certainty remains an area of opportunity for both banks and nonbanks, but requires a larger industry conversation on how to remove existing regulatory barriers and thus attract more participation going forward.”