There are strong indications that banks are pulling back from residential mortgage lending to such an extent that non-banks (mortgage brokers and mortgage bankers) may be the only ones left!
Once practically cornering the market after the 2008 crash, the “Big Box” banks’ share of residential mortgage lending is steadily declining. In the wake of the financial crisis, banks are dealing with a ridiculously over-burdensome regulatory environment that is both unhealthy for the banking industry as well as consumers.
Big banks are hesitant to lend, even to borrowers with good credit, according to MarketWatch, (a financial news website). And according to a recent article in Mortgage Professionals of America, “To put it bluntly, residential mortgages aren’t worth the trouble for many banks.” Last year Chase Manhattan Bank ceased lending FHA mortgages. Last month, Bank United stopped residential mortgage lending all together. Even Wells Fargo, the biggest mortgage lender for many years during the Great Recession, has seen its market share slashed by over 60%.
In a recent report, the Kroll Bond Rating Agency predicted the four largest commercial banks may either downsize or exit entirely from the business of originating and servicing residential mortgage loans.
Banks have been receiving a continuous battering of regulations and prosecutions. With the implementation of the “Qualified Mortgage” and “Ability To Repay” Rules, the mortgage options for borrowers have decreased drastically, while the liability risk for lenders has increased dramatically. The simple fact is the cost of capital and compliance has convinced many banks that providing home loans to American families is not worth the expense or the risk!
The irony is these unintended consequences of the Dodd-Frank Financial Reforms are creating a “back to the future” scenario. In the 1980’s and 1990’s, mortgage brokers and bankers were responsible for lending as much as 70% of all residential mortgages! It seems the pendulum is swinging back in that direction.
Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.
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