Therefore, many non-banks “broker” HELOCs out to financial institutions who then fund and close the loan in their name, which is not a meaningful revenue opportunity for the non-bank lender. So, who is in the best position to offer HELOCs, banks or non-banks? It is tough for non-banks to originate HELOCs profitably, as there are few if any investors who will buy funded product at a reasonable price. The demand for HELOCs is rapidly increasing and the product certainly makes sense for many borrowers. Instead, they are opting to keep their low rate first mortgage in place and obtain a HELOC or perhaps a closed end second mortgage with fixed repayment terms.Ĭhart 3 (source: Curinos) summarizes the rapid increase in HELOCs in 2022. Borrowers who need cash are not going to obtain a Cash Out Refinance loan at today’s prevailing rates in the 6.5% range for 30-year fixed-rate loans. Chart 2 summarizes mortgage debt outstanding by interest rate band.īased on data from CoreLogic, approximately 80% of borrowers have mortgage rates of less than 4%. After the refinance boom of 20, a large percentage of homeowners have first mortgages at historically low rates. Home Equity Lines of Credit (HELOCs) are popular in today’s market for obvious reasons. Home Equity Loans and Lines of Credit: The Odds Are Ever in the Banks’ Favor While that is perfectly understandable, it negatively impacts bank market share as the Wholesale share of the market has been trending up, driven by a handful of large non-bank lenders. This does not help banks when they are competing for their fair share of first-time homebuyer transactions.Īlso, banks have all but abandoned the wholesale channel, with notable exceptions, as they are generally not comfortable that they can manage the risks. Many banks have avoided FHA lending, as the seemingly random enforcement of the False Claims Act creates unquantifiable and therefore unacceptable risk for many financial institutions. When market volume rises, bank cycle times are much longer than non-banks, and this hurts their ability to be competitive, especially on purchase transactions. While there are cultural and employee morale benefits to this, the risk is that banks lose market share as volumes increase because they do not staff quickly enough to handle the volume. In general, banks have been slower to hire and fire through market cycles. In our experience, there are many reasons for the shift in share to non-banks. non-bank market share is summarized in Chart 1:īased on HMDA data, bank share has dropped from 76% in 2010 to 37% in 2021. Looking in the rear-view mirror, non-banks have been gaining market share for quite some time now. This article examines the products that create advantages for banks in the current market. In today’s extremely challenging market, banks have an opportunity to regain some market share from non-banks by leveraging their liquidity and capital to offer products that non-banks are simply not able to offer. On the other hand, industry consolidation is more likely to be focused on non-banks, via M&A or shutdown scenarios. And, these days, non-banks are much better at retaining customers than banks are. Today, however, non-banks now have more servicing market share than banks, so that advantage has diminished. For example, refinance markets used to help banks, especially those with large servicing portfolios. Key factors include the level of interest rates, the trend line for rates, the regulatory environment, capital requirements, and the mortgage servicing rights market, just to name a few. There are a variety of factors that may tilt the scales in favor of banks or non-banks. Like many things in life, it’s all a matter of perspective. When it comes to residential mortgage lending, is it better to be a bank or a non-bank?
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |