Non-bank lenders and independent mortgage banks (IMBs) are outpacing large banks in market share with new approaches to pricing, home equity, and servicing.
Tracking applications, bookings, locks, and closings from over 55% of mortgage originations, market data curator Curinos noticed business strategies have evolved recently.
“We’re not 2021 or 2022; everything’s contracted significantly,” SVP of Real Estate Lending Rich Martin told NMP. “It's a normalized purchase market, but who is winning at the end of the day?”
The answer is IMBs and non-bank lenders who have achieved sufficient scale, rendering them able to increase market share amidst profitability pressures.
“They’re large enough they can fund all the technology innovation, the digital loan applications, product diversification,” Martin pointed out.
From 2022 to the current day, IMBs have increased market share from 50% up to 53%, based on Curinos’s proprietary benchmark data. In the same time frame, large national banks have decreased market share from 20% to 15%. Additionally, IMB production is up 4% year over year, according to Curinos, whereas the big banks are down 7% and smaller, community banks are down 2% YOY.
“We attribute this outperformance to refined differentiation across product, pricing, and servicing,” Martin said. “Out of the top 100 MSR (mortgage servicing rights) owners, IMBs own 63%, so continuing to grow their servicing books, which is important for recapture purposes, as well as pricing at a more localized level.”
Within the standard conforming segment, he added, 67% of IMBs maintain a regional price strategy as compared to only 30% of banks.
“Within product segmentation, seeing IMBs capture more of the government space, with IMBs’ product concentration around 38% combining FHA/VA production, as opposed to the low single digits for banks’ share, dependent on asset size.”
Curinos’ findings are in agreement with Home Mortgage Disclosure Act (HMDA) data released by the Federal Financial Institutions Examination Council (FFIEC) on July 11, which indicated that the share of home purchase mortgages originated by non-depository, independent mortgage companies rose from 60.2% in 2022 to 63.1% in 2023.
As Martin likes to say, “not all markets are created equal.”
“You’ve got different borrowers, there’s a more rigorous approach and a lot of granularity in terms of how you price, and what the objective is,” he added. “If you’re looking to grow or preserve market share, taking a new approach to pricing is what we’re seeing in the data.”
For example, retail banks once had the monopoly on products that leverage home equity, but that’s changing.
“IMBs continue to amass more MSR assets which give them connectivity with the client,” Martin said. “We start to see that leveling of the playing field…home equity is still a viable opportunity for the 75% of the market that’s got less than a 5% loan rate.”
Industry analysts initially thought the rise in HELOCs among fintech companies and IMBs was just a blip in the market. However, these recent statistics point to a potentially stronger foothold.
“We thought it was a temporary phenomenon, but if you look at who’s doing meaningful volume in equity, some of these companies are starting to create that skill,” Martin said. “They’re clearly doing something right just given the relative level of originations they’ve been able to achieve.”
Nuances vary among lenders by size, ratio of purchase to refi transactions, pricing and even customer base. When they’re lucky, an LO can snag a client for multiple loan products throughout a lifetime. Consumers who leveraged home equity, for example, might consider refinancing when mortgage rates make it possible, down the road.
In Seattle, Martin’s home base, borrowers are being priced out of loans from the GSEs.
While one company might spend a lot of time and money on marketing initiatives and consumer-facing programs, another might be a price leader for a specific product, giving them the opportunity to be less aggressive on that business.
“It’s really about the local competitive space,” he pointed out. “There are markets where there is a higher volume of credit unions, or IMBs, or banks. It's those undercurrents – separate from the economics themselves – that create opportunity in a local marketplace.”
As the market normalizes, lenders will be weighing their priorities and reevaluating.
“You’ve still got more or less the same number of lenders competing for a 50% smaller pie, so those competitive pressures have absolutely intensified,” Martin said. “At the end of the day everybody wants to grow market share, but at what cost?”
