Small Lenders Making a Big Difference

According to Inside Mortgage Finance, smaller banks and nonbank lenders are now dominating the mortgage business. A study found that these previously nontraditional mortgage lenders make up about 60% of mortgages today compared to about 39% in 2009. Of course, this depends on how you define smaller banks and nonbank lenders. When considering those outside of the top 25 lenders, the numbers show nontraditional lenders as having 35% of the market today compared to 13% in 2009.

The relevance is that any way you slice it, smaller banks and nonbanks have a significant share of the market. Just as important, big banks continue to retreat from the market. Only five of the largest 20 banks remain active in the market today.


© dencaLE -

© dencaLE –

What’s Happening With Big Banks

For example, Wells Fargo used to be the largest single lender with more than 22% of the market share. Today that volume is down by 60% compared to its high in 2006. As a result, Wells Fargo has laid off hundreds of workers in its mortgage department. Big banks backing out of the mortgage business isn’t just about perceived risk. A combination of low interest rates and higher fees being charged by Fannie Mae and Freddie Mac make the mortgage business a low profit opportunity for banks to invest money. Smaller, local banks tend to hold mortgages in-house rather than selling them to Fannie and Freddie. They also charge a slightly higher interest rate. This makes the mortgage business more profitable for them. Nonbanks generally follow the same business model as small banks.


Mortgage Rates are On the Rise

A year ago at about this time, mortgage rates were hovering around 3.36%. This week saw them at 4.5%. The highest since  last September. In November, the national employment rate rose by 203,000 new jobs. The unemployment rate dropped from 7.3% to 7.0%. This is good news for the Federal Reserve that has been keeping interest rates artificially low to stimulate the economy. However, as the economy improves, interest rates are sure to go up, just as they are doing.

The week ahead has several important economic reports coming out that will influence interest rates. These include:


  • New-home sales
  • Manufacturing data
  • Payroll data
  • Jobless claims

If you are negotiating a loan or refinancing an existing mortgage, you want to lock in rates as soon as you can because if the release of new information shows the economy is continuing to grow, it will cause interest rates to rise.

While it could go the other way, most experts now consider a mortgage rate of 4.25% to be a floor and strong economic news would bring that floor up to 4.5%. According to CoreLogic, year-on-year homes prices were up 12.5% in October. Inventory continues to shrink. The bottom line is that the best opportunity to buy houses is well behind us. However, it will only become more expensive both for purchase prices and interest rates. Don’t wait until you are completely priced out of the market. If you are going to buy, do it now.



Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.