A “shakedown” amongst mortgage lenders is coming

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

Simon Dawson | Bloomberg via Getty Images.

Banks and other mortgage providers have been hit by a slump in loan demand this year, thanks to the Federal Reserve interest rate hikes

According to her, some companies will be forced out of the industry altogether as the refinancing activity disappears Tim WennesManaging Director of the US Division Santander.

He would know: Santander, a relatively small player in the mortgage market, announced its decision a drop product in February

“We were the first ones here, and others are now doing the same calculation and seeing what’s happening with mortgage volumes,” Wennes said in a recent interview. “For many, especially smaller institutions, most of the mortgage volume is refinancing activity, which is draining and likely to cause a shock.”

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 hit a record high 4.4 trillion dollars 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 have yet to come down have put housing out of reach for many Americans and closed the refinancing pipeline for lenders. Refinancing according to the interest rate 90 percent drowned. to April from last year, according to Black Knight.

“just right”

Santander’s move, part of a strategic shift to focus on higher-return businesses such as its auto loan franchise, now looks like a preemptive move. Santander, which has assets of about 154 billion USD and 15,000 US employees, is part of a Madrid-based global bank with operations across Europe and Latin America.

Recently, the largest mortgage banks, JPMorgan Chase and Wells Fargo, reduced its mortgage staff to accommodate lower volume. Reportedly, smaller non-bank providers scratching sell loan servicing rights or even consider merging or collaborating with competitors.

“The sector has been as good as it is,” said Wennes, a three-decade banking veteran who has worked at companies such as Union Bank, Wells Fargo and Countrywide.

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

Follow others?

Although banks used to dominate America’s mortgage business, since 2008 financial crises, when housing loans played a key role, their role has diminished. Instead, unbanked players like it Rocket mortgage captured a market share less burdened by regulations that are more common to large banks.

From top ten mortgage providers in terms of loan volume, only three are traditional banks: Wells Fargo, JPMorgan and Bank of America.

The rest are newer players with similar names United Wholesale Mortgage and Liberty Mortgage. Many companies took advantage of the pandemic boom and started going public. Their shares are now deep underwater, which could lead to consolidation in the sector.

Complicating matters is the fact that banks must spend money on technology platforms to streamline the document-intensive application process to meet customer expectations.

And firms including JPMorgan have said it makes capital rules increasingly difficult will force her to clear her mortgage from its balance sheet, making the business less attractive.

Because of the dynamic, some banks may decide to offer mortgages through partners, which Santander is now doing; it says Rocket Mortgage. Website.

“Banks will ultimately have to ask themselves if they think this is the core product they’re offering,” Wennes said.

Leave a Comment