The numbers show it. Between midyear 2010 and midyear 2011, the originations share of the top five mortgage lenders dropped by more than 250 basis points.
As of midyear 2011, the top five lenders had a share of 57.7%. For midyear 2010, the top five lenders (conveniently the same ones—Bank of America, Wells Fargo, JPMorgan Chase, Citi and Ally) split up 60.4% of the market.
It may be too soon to say deconsolidation of originations has replaced consolidation as a trend, but it is a welcome sign that the origination market is not as top-heavy as it used to be (though it is still top-heavy). One of these years the origination market will return to its former prominence, and it will be a good thing to have more players taking share. The market will be more diversified, competition will be sharper.
What will it mean for the business? Hard to predict. Will the run-up in retail originations, the biggest trend since the market collapse, also be curtailed? Will third-party lending rebound? Let's hope so.
It is constructive to look at the past to see what has happened when mortgage deconsolidation occurred. By the mid-1980s, thrifts, commercial banks and mortgage banks had a rough parity in market share. With the winnowing of the thrift market, a vacuum emerged in mortgage lending.
However, thrift share wasn't divided between banks and mortgage banks. A good number of thrifts remained, for instance. What happened instead was the rise in third-party lending. What happened was mortgage brokers became the leading specialists in originations.
That gave rise to a number of things both good and bad. The misuse of predatory subprime lending and the cultivation of a sales-first, worry-about-underwriting mentality later were bad things. But the development of a referral-based increase in effort and service, and a quickness to identify potential new products, these were good things.
So the hope is a shakeup in market share could lead to a new creativity in mortgage lending. That would certainly be beneficial. What we have now is a retreat to the old way of doing things (Freddie, Fannie and FHA) using bankrupt secondary agencies (to be more precise, FHA is not bankrupt). Only record-low mortgage rates and very attractive (to buyers) home values have kept the business from a total collapse. The mortgage industry though, with its bipolar boom-and-bust cycles, has a tradition of periodically reinventing itself. It will be interesting to see what it comes up with this time around.
