June 1, 2023

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The 'jolt' among mortgage lenders is coming

The ‘jolt’ among mortgage lenders is coming

A banner hangs from a Banco Santander branch in London, UK, on ​​Wednesday, February 3, 2010.

Simon Dawson | Bloomberg via Getty Images

Banks and other mortgage providers have been hit by lower loan demand this year, as a result of the Federal Reserve interest rate walking long distances.

Some companies will have to exit the industry entirely as refinancing activity dries up, according to Tim WinsCEO of the United States Division Santander.

He would have known: Santander – a relatively small player in the mortgage market – announced its decision to Drops product in February.

“We were the first to move in here and others are now doing the same calculations and seeing what’s going on with mortgage volumes,” Wiens said in a recent interview. “For many, especially smaller institutions, the vast majority of mortgage volume is a refinancing business, an activity that is drying up and likely to deliver a jolt.”

The mortgage business boomed during the first two years of the pandemic, driven by low financing costs and a preference for suburban homes with home offices. The industry has set a record $4.4 trillion in loan volume last year, including $2.7 trillion in refinancing activity, according to mortgage data and analytics provider Black Knight.

But rising interest rates and home prices that haven’t yet come down have put housing out of the reach of many Americans and closed the lenders’ refinancing pipeline. Refinance based on price drowned 90% Until April of last year, according to the Black Knight.

‘As best as possible’

The move by Santander, part of a strategic pivot to focus on high-yield businesses such as the auto lending franchise, now looks like a prescient move. Santander, which has $154 billion in assets and 15,000 American employees, is part of a Madrid-based global bank with operations throughout Europe and Latin America.

Recently, the largest banks in housing loans, c. B. Morgan Chase And the Wells FargoMortgage employment levels have been reduced to adjust to lower volumes. The smaller non-bank service providers are said to be confusion To sell the rights to service the loan or even consider merging or partnering with competitors.

“The sector has been as good as it gets” said Wiens, a three-decade veteran banking expert who has worked at companies including Union Bank, Wells Fargo and Countrywide last year.

“We looked at returns during the cycle, saw where we were headed with interest rates rising, and made the decision to exit,” he said.

others to follow?

While banks have dominated the US mortgage business, they have played a diminished role since the 2008 financial crisis in which home loans have played a central role. Instead, non-bank players like missile mortgage It has absorbed market share, and is less complicated by regulations that fall more heavily on large banks.

outside the Top ten mortgage providers In terms of loan volume, there are only three conventional banks: Wells Fargo, JPMorgan and American bank.

The rest are new players with names like united wholesale mortgage freedom pledge. Many companies have benefited from the pandemic boom in going public, and their shares are now heavily underwater, which could lead to a consolidation in the sector.

Complicating matters, banks have to pump money into technology platforms to streamline the document-intensive application process to keep up with customer expectations.

Companies including JPMorgan said increasingly onerous capital rules He’ll force her to purge her mortgages of its balance sheet, which makes the business less attractive.

The dynamism could make some banks decide to offer mortgages through partners, which Santander is doing now; Lists Rocket Mortgage on their site website.

“Banks will eventually need to ask themselves whether they consider this their core product,” Wiens said.

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