Sam Gendusa May 6, 2019

Newsletter - May 2019

Consumers spent more than $517 billion online with U.S. merchants last year, according to Commerce Department figures.

It’s no surprise: Online shopping is convenient! The internet never closes, and you don’t even have to leave the house to shop there.

You can get almost anything online, from light bulbs to mattresses. Why not go there for a mortgage, too?

Last year, more than half of all borrowers did exactly that.

In 2018, 59% of all mortgages were made by non-banks such as Quicken Loans and Loan Depot, according to the Urban Institute. In fact, six of the 10 largest mortgage lenders in the U.S. today are non-banks.

That means traditional banks are losing share in the mortgage market. For JPMorgan Chase, mortgage origination's were down 18% year over year in the first quarter. Wells Fargo (which is still the largest originator of mortgages in the U.S.) reported a 23% drop in mortgage lending.

But there's more to the rise in non-bank mortgages than expedience.

After the financial crisis of 2008 and the regulations that followed, many banks scaled back their presence in the mortgage market. Some, like Capital One, are getting out of the mortgage business entirely.

Owning mortgages has become “hugely unprofitable,” said Jamie Dimon, CEO of JPMorgan Chase.

“Because there are so many regulators involved in crafting the new rules, coupled with political intervention that isn’t always helpful, it is hard to achieve the much-needed mortgage reform,” Dimon said. “This has become a critical issue and one reason why banks have been moving away from significant parts of the mortgage business.”

That has made room for non-banks to move in, offering mortgages to borrowers with less-than-perfect credit scores that traditional banks won’t lend to.

“Banks aren’t really making loans to low- to moderate-income families, so non-banks are doing it,” said Scott Olson, Executive Director of the Community Home Lenders Association.

But don’t count banks out yet.

“Mortgage lending is core to Wells Fargo,” said the company’s CFO, John Shrewsberry. “We’ve seen ups and downs in the mortgage business for the decades that we’ve been the leader in it. We’ll get through this.”

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