To an outside observer, it could seem that something is amiss in the residential mortgage banking business. While many of the “bad eggs” have the left the market, their crimes are still being brought to light in the press and through legal action. The good news, there are still hundreds and hundreds of lenders (brokers, mortgage bankers, and banks) who are trying to help borrowers refinance or buy a home. However, overcapacity is an issue. With originations dropping from nearly $1.8 trillion to $1.2 trillion, not everyone is going to survive. Originations ranged from about $500 billion to $1.5 billion for more of the 90’s and hit a peak at $4 trillion in 2003.
We are all consumers and want to be protected; the CFPB is designed to protect the consumer. However, the Bureau may be out of control – or beyond control according to some critics. Some wonder if the Bureau’s actions will stifle the economy. While veterans of the industry agree that some regulation was overdue , some feel it has gotten out of hand. What we do see is that the CFPB is working to resolve some of the confusion in regards to what lenders are and are not allowed to do and will hopefully have everyone on the same page withint the next few months.
Secondary markets are hopeful also – again there are many out there looking to buy mortgages – or at least originate them. Many are even looking to take jumbo, non-agency or non-QM loans. However, this could be a problem. Historically, non-agency production accounts for 5-10% of production – meaning that in 2014 we will see $150 billion – and how much of that is going directly into the bank’s portfolio? This could mean that there is nothing left for smaller players in the market. It is not always a good thing when there is a lot of capital out there – and large institutions are chasing it. Small banks and brokers and becoming more and more afraid of the future and rightfully so. We expect that most of them will not be able to survive the next 2 years unless they partner up with larger banks.