Smart Borrower Blog

Banks Losing Ground to Non-Bank Lenders in the Mortgage Market

Nov 2nd, 2016 @ 8:09 PM by Amber Nelson

While traditional banks have long been the major players in making mortgage loans to Americans, during the third quarter non-bank lenders originated more than half of all mortgage loans for the first time in 30 years, according to Inside Mortgage Finance.

During the third quarter of 2016, among the top 50 mortgage lenders, non-banks – likes Quicken Loans Inc. and PennyMac Financial Services Inc. – lent 51.4 percent of all home loans, an increase from 46 percent for all of 2015 and up dramatically from 2009 when they made up just 9 percent of all originations. Also six of the top 10 mortgage lenders by loan volume were non-banks during the third quarter, up from four in 2015 and just two in 2011.

Three large banks have dominated the lending scene for years – J.P. Morgan Chase & Co, Bank of America Corp. and Wells Fargo & Co. – but their share of mortgage originations dropped to 21 percent through the third quarter of this year. That’s a sharp decrease from 2011 when they collectively originated 50 percent of all home loans.

Big banks have shied away in recent years from riskier borrowers, feeling gun-shy after having faced stiff government penalties in the mortgage meltdown aftermath and tighter regulation since then. They have gravitated instead toward jumbo loans, those over the conforming loan limit of $417,000. These mortgages involve the nation’s wealthier homebuyers and are much less likely to go into default.

Meanwhile non-bank lenders have stepped in to fill the funding gap for those with lower credit scores or lower down payments. Non-bank lenders have their loans guaranteed by the government and often get their own funding for the mortgages from some of the big banks who do not want to make those loans directly.

If this trend continues , non-bank lenders may need to build up their reserves in order to have enough cash on hand to avoid financial trouble if a major housing downturn were to happen again soon. Otherwise taxpayers could end up footing the bill again.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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