Bank CEO Predicts a ‘Shakeout’ Among Mortgage Lenders


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According to the CEO of one large banking corporation, the mortgage lending industry has gotten ahead of itself and has nowhere to go but down, with huge shakeouts to come over the next few years. He predicts that many lenders will be forced out of business by 2016 and others will consolidate in an effort to survive financially. The CEO claims that while these types of events are common in other industries, they don’t tend to happen as frequently in banking because government-backed Fannie Mae and Freddie Mac provide support during hard times.

Mortgage lenders are seeing plummeting demand for loans due to the Federal Reserve’s interest rate hikes.

Tim Wennes, CEO of the U.S. division of Santander, warns that some firms will be forced to exit the industry entirely as lending activity for real estate has become problematic.

Indeed, Santander, a relatively small player in the mortgage market, has dropped this product since February.

“We were a first mover here and others are now doing the same math and seeing what’s happening with mortgage volumes.” “Refinance activity is drying up and will certainly lead to a shakeout,” says one expert. “For many, especially the smaller institutions, the great majority of mortgage volume is refinance activity.”

The first two years of the pandemic saw a boom in the mortgage industry, which was fueled by extremely low financing costs and a predilection for suburban homes with home offices. According to mortgage data and analytics provider Black Knight, the sector reported a record $4.4 trillion in loan volumes last year, including $2.7 trillion in refinancing activity.

However, rising interest rates and steadily rising property prices have made homeownership unaffordable for many Americans and blocked the refinance market for lenders. Compared to previous year, rate-based refinances decreased by 90% through April, according to Black Knight.

It now appears as though Santander’s decision, which was a part of a strategy pivot to concentrate on higher-return industries like its auto lending franchise, was wise. Santander, a worldwide bank headquartered in Madrid with operations throughout Europe and Latin America, with around $154 billion in assets and 15,000 workers in the United States.

The biggest home lending institutions, JPMorgan Chase and Wells Fargo, have lately reduced mortgage personnel levels to account for the decreased demand. Additionally, it is said that smaller nonbank providers are rushing to sell loan servicing rights or are even thinking about merging or forming partnerships with rivals.

According to Wennes, a three-decade banking veteran who worked at companies including Union Bank, Wells Fargo, and Countrywide, “the industry was as excellent as it gets” last year.

We decided to quit after taking into account the cycle’s returns and where increased interest rates were likely to take us.

Others to follow?

Since the 2008 financial crisis, in which mortgages played a crucial part, banks have played a smaller role in the American mortgage market than they formerly did. Instead, nonbank competitors like Rocket Mortgage have absorbed market share because they are less constrained by rules that disproportionately affect big banks.

Only three of the top ten mortgage lenders by loan volume—Wells Fargo, JPMorgan, and Bank of America—are conventional banks.

The other players are more recent arrivals, with names like Freedom Mortgage and United Wholesale Mortgage. The pandemic boom was used by several businesses to raise money by going public. Their shares are currently significantly undervalued, which could lead to industry consolidation.

Complicating matters, banks are forced to invest heavily in technological platforms to modernise the laborious application process that requires a lot of paperwork in order to meet client expectations.

Additionally, companies like JPMorgan have said that the industry will become less appealing as a result of the increasingly strict capital regulations forcing it to eliminate mortgages from its balance sheet.

Due to the current situation, some banks may decide to sell mortgages through partners, as Santander now does by listing Rocket Mortgage on its website.

In the end, Wennes added, “Banks will need to question themselves if they consider this a primary commodity they are giving.”


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