By Jason Boone
Even as the housing market rebounded from the depths of the recession, big banks largely stood on the sideline. They watched as nonbank institutions — companies that only make loans and don’t offer traditional banking services such as savings and checking accounts — gobbled up more and more of the mortgage market.
Deregulation that the Trump administration has pledged could alter the trend, however. Moreover, a predicted rise in interest rates should lure more banks back into the game with the prospect of higher profits. These factors should result in more competitive choices for home buyers.
As the United States clawed out of the recession, home loans were still dominated by mammoth banks. In 2010, nonbanks handled 10 percent of the mortgage origination market, according to Mortgage News Daily. Stated another way: “In 2011, 50 percent of all new mortgage money was loaned by the three biggest banks in the United States: JPMorgan Chase, Bank of America and Wells Fargo,” The Washington Post notes.
The consensus among mortgage experts is that big banks got gouged in the aftermath of the housing implosion and recession. Consumers walked away from their homes — perhaps an unprecedented development in the history of U.S. real estate — banks were fined and forced to rescind loans thought to be flawed, and new regulations and requirements tied their hands.
Non-banks faced a softer regulatory hand in immediate wake of the housing crisis.
The share of mortgage loans handled by the three biggest banks — Chase, BofA and Wells Fargo — had fallen to 21 percent by September 2016. The share handled by nonbanks — such as loanDepot and Quicken Loans — is up to 50 percent. “Banks that are still in the market are much less competitive in pricing,” Mortgage News Daily reports.
A J.D. Power on home borrowers’ satisfaction that was released in November showed that 27 percent of first-time buyers and 21 percent of all borrowers regret their choice of a lender. The study showed an even split between banks and nonbanks among the 10 most highly rated mortgage providers, so consumer satisfaction data doesn’t lean toward one type of institution over the other.
As part of an overall theme of a more laissez faire approach to administering the country, Trump has heralded a relaxed regulatory environment. Financial institutions assume that hands-off approach will seep into the home mortgage sphere, perhaps deeply enough to induce them to return to the mortgage business. If consumers are offered more competitive choices for their mortgage business — having more banking options as well as the surging nonbank companies — they should reap the benefits.
A common prediction among observers of the mortgage market is that the interest rates will rise from their historic lows of the last few years. We’d expect such an increase to continue to depress the refinance market and perhaps price some buyers out of housing market. But a relaxation of regulations could take some of the sting out of a rate increase.
As Rick Sharga, chief marketing officer of Ten-X, an online real estate marketplace in Irvine, Calif., told The Washington Post: “That would be good for consumers and for the housing market, as long as it doesn’t lead to the laxity and craziness of the previous housing boom.”
Obtaining financing for your home purchase is an integral part of a deal, and my experience can help guide you through the mortgage process. If you’re in the market for a home — whatever your stage of financing — or considering putting your home up for sale, I can put my background and experience to work for you. Please contact me at (541) 383-1426, or visit Bend Property Search to connect with me through my website.