Mortgage Lending Industry Analysis and Market Outlook

The mortgage lending industry has undergone significant changes in recent years. The industry's total outstanding mortgage debt has grown from $10.4 trillion in 2010 to $18.1 trillion in 2020.

The COVID-19 pandemic has had a profound impact on the mortgage lending industry. Delinquency rates have increased, with 3.1% of mortgage loans 30 or more days past due in the second quarter of 2020.

The industry's shift towards digital lending has accelerated in response to the pandemic. Online mortgage applications have become more common, with 74% of mortgage lenders reporting an increase in online applications in 2020.

Aging population demographics are also influencing the industry. By 2030, the number of homeowners aged 65 and older is expected to increase by 40%, creating a growing demand for reverse mortgages.

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Nonbank lenders offer different loan products and underwriting standards than banks. They have to work harder to earn customers' business because they may not be as widely known.

United Wholesale Mortgage, for instance, offers four types of bank statement loans. This can help well-qualified self-employed borrowers take out up to $3 million with a debt-to-income ratio as high as 90%.

Nonbank lenders like Guaranteed Rate offer a wide range of loan options, including bank statement loans, foreign national loans, and jumbo loans. Flagstar Bank also offers a variety of loans, including conventional, FHA, VA, and USDA mortgages.

Here are some examples of nonbank lenders and their offerings:

Wells Fargo topped the list of banks by volume, closing 142,769 loans in 2022. This is a significant number, showing just how much business Wells Fargo is doing in the mortgage lending space.

Bank of America came in second, closing 121,486 loans in 2022. This is a testament to the bank's strong presence in the mortgage market.

U.S. Bank took third place, closing 119,747 loans in 2022. This is impressive, considering the bank's focus on borrowers with high mortgage balances.

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Chase Bank came in fourth, closing 115,033 loans in 2022. This is a notable achievement, showing the bank's ability to stay competitive in the mortgage lending market.

PNC Bank took fifth place, closing 107,904 loans in 2022. This is a strong showing, especially considering the bank's focus on high-net-worth jumbo loans.

Here's a list of the top 10 banks by volume in 2022, according to the HMDA data:

Companies are bundling home-buying services, including mortgages, to make the process more efficient and manageable for customers. This trend is driven by customer demand, with 95% of home buyers considering a one-stop-shop model for their home-buying journey.

Research from the National Association of Realtors indicates that 79% of home buyers believe bundled services make the buying or selling process more efficient and manageable.

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Lenders and nonbank lenders are two types of mortgage lenders. Nonbank lenders are a type of lender that may not be as widely known as big-name banks.

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Nonbank lenders have to work harder to earn customers' business because they may not be as well-known. They offer different loan products and have different underwriting standards than banks.

Banks have other lines of business to earn money from, so when there's less demand for home loans, they can shift their focus. Nonbank mortgage lenders still need to sell mortgages.

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Mortgage origination is the process by which a mortgage is secured by a borrower in the U.S. This involves submitting a loan application and documentation related to financial history and credit history to the underwriter, typically a bank. Sometimes, a third party like a mortgage broker is involved.

The underwriter reviews the application and determines whether the loan can be accepted. If the underwriter is not satisfied with the documentation provided by the borrower, additional documentation and conditions may be imposed. Credit scores are often used and must comply with the Fair Credit Reporting Act.

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Typically, the following documents are required for traditional underwriter review: credit report, Uniform Residential Loan Application, Uniform Residential Appraisal Report, Verification Of Employment, Verification Of Deposit, Single Family Comparable Rent Schedule, Transmittal Summary, copy of deed of current home, federal income tax records for last two years, Verification of Mortgage, Borrower's Authorization, Purchase Sales Agreement, and more.

Here are the typical documents required for traditional underwriter review:

Automated underwriting engines like Freddie Mac's "Loan Product Advisor" and Fannie Mae's "Desktop Underwriter" have reduced the amount of documentation required from many borrowers.

The mortgage origination process has undergone significant changes in recent years, with many lenders investing in technology to streamline various parts of the process.

Front-end platform modernization has been a key area of focus, with lenders implementing new software solutions to speed up the mortgage-application process and improve the customer experience.

Despite these strides, many mortgage originators still engage in labor-intensive and repetitive fulfillment and servicing, which can lead to elevated origination costs and delayed cycle times.

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In fact, it's estimated that more than half of the tasks across front-to-back processes can be automated, but many lenders are not taking full advantage of this potential.

To accelerate automation efforts, lenders can review more components of their mortgage technology stacks, including back-end elements such as straight-through processing and automated decisioning of applications.

Some leading players are combining multiple third-party technology components rather than relying solely on a core loan platform, which can help to further reduce costs and improve efficiency.

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Origination is the process by which a mortgage is secured by a borrower in the U.S. This involves submitting a loan application and documentation related to financial history and/or credit history to the underwriter, which is typically a bank.

The Truth in Lending Act and Real Estate Settlement Procedures Act (1974) regulate origination, while credit scores must comply with the Fair Credit Reporting Act. Various state laws may also apply.

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A borrower's credit history and documentation can categorize loans into high-quality A-paper, Alt-A, and subprime. Loans may also be categorized by the level of documentation, with full documentation, alternative documentation, or little to no documentation.

Automated underwriting statistical models have reduced the amount of documentation required from many borrowers. For borrowers with excellent credit and debt positions, there may be virtually no documentation of income or assets required.

Here are the typical documents required for traditional underwriter review:

Closing costs are a crucial part of the mortgage process, and they can add up quickly. In 2010, one survey estimated that the average total closing cost in the United States on a $200,000 house was $3,741.

These costs include fees for things like points to lower the interest rate, application fees, and credit report fees. Attorney fees, title insurance, appraisal fees, inspection fees, and underwriting fees are also part of the closing costs.

Some of these fees can be financed and added to the mortgage amount, which can be a relief for some homebuyers. However, it's essential to factor these costs into your overall mortgage budget.

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The mortgage lending market has seen a significant shift in recent years, with nonbank lenders continuing to grow their market share. Nonbanks now account for nearly 70 percent of total originations, up from around 50 percent five years ago.

Rocket Mortgage is leading the way, dominating both the dollar amount and volume of mortgage lending. In 2022, it originated over $127 billion in mortgage loans and closed over 464,000 loans.

The top nonbank lenders by dollar amount include Rocket Mortgage, United Shore Financial Services, and loanDepot, with Rocket Mortgage also taking the top spot in terms of volume.

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Nonbank lenders have been growing their market share in the mortgage lending industry. Five years ago, they accounted for roughly half of total originations, and by 2020, that figure had leapt to nearly 70 percent.

This growth has been driven by a handful of outperforming nonbanks that have a strong digital focus and a differentiated value proposition. They've invested heavily in digitized interfaces that make submitting an application and communicating with the lender easier.

Consumers can benefit from having nonbank lender choices, as they offer speed, convenience, and transparency. Some tech-enabled lenders are even introducing innovative products, such as offering cash up front to help home buyers make cash offers in competitive real-estate markets.

Digital-focused originators are expected to maintain and possibly further grow their share of the market. They've been able to demonstrate cycle times that are at least 30 percent lower than the industry average and costs that are at least 25 percent lower than the industry average.

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The mortgage market had been expecting a surge in refinancing activity, but it never materialized. The refinancing rate in 2022 was 28% lower than in 2021.

Lenders were expecting a big increase in refinancing due to low interest rates, but it didn't happen. Low interest rates can make refinancing more attractive to homeowners.

The total dollar amount of refinancings in 2022 was $1.1 trillion, a 35% decrease from 2021. This is a significant drop, considering the strong demand for refinancing.

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Many homeowners took advantage of low interest rates and refinanced in 2021, which led to a decrease in demand in 2022. This decrease in demand led to a significant drop in refinancing activity.

The Mortgage Bankers Association had predicted a refinancing boom in 2022, but it didn't happen. The association had forecasted a refinancing rate of 62% in 2022, but it ended up being around 45%.

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Mortgage lending practices vary significantly across the globe. In Western Europe, variable-rate mortgages are more common than fixed-rate mortgages, unlike in the United States.

The US has home ownership rates comparable to Europe, but overall default rates are lower in Europe than in the US. This is an interesting contrast, as you might expect home ownership rates to be lower in regions with higher default rates.

Mortgage loan financing in the US relies more on secondary mortgage markets and less on formal government guarantees. This is in contrast to many other countries, where government-backed guarantees are more prevalent.

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Prepayment penalties are discouraged in the US by underwriting requirements from large organizations like Fannie Mae and Freddie Mac. This is a significant difference from many other countries, where prepayment penalties are more common.

Mortgage loans in the US are often nonrecourse debt, meaning that borrowers are not personally liable for the loan if the property is sold for less than the outstanding balance. This is a unique aspect of US mortgage lending practices.

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Rocket Mortgage is the largest mortgage lender in the U.S. by both dollar amount and volume, with $127,577,235,000 in dollar amount and 464,363 loans closed in 2022.

United Shore Financial Services (United Wholesale Mortgage) is a close second, with $127,513,645,000 in dollar amount. The top 5 lenders by dollar amount are all nonbank mortgage lenders.

The top 5 lenders by volume are also dominated by nonbank mortgage lenders, with Rocket Mortgage having the most loans closed at 464,363.

Here are the top 10 lenders by dollar amount:

Mortgage lenders can quickly relend the money to other borrowers, allowing the public to use these mortgages to purchase homes.

Securitization has grown rapidly in the last 10 years, making it possible for borrowers with superior credit to get loans at artificially low rates.

The Federal government created programs like Ginnie Mae, Fannie Mae, and Freddie Mac to foster mortgage lending and encourage home ownership.

These programs work by offering a guarantee on mortgage payments, allowing loans to be securitized and issued at a slightly lower interest rate to investors.

Non-conforming mortgage loans, which can't be sold to Fannie or Freddie, are often packaged into mortgage-backed securities by companies called correspondent lenders.

Securitization allows banks to create more mortgages than they could with the amount they have on deposit, making it easier for people to buy homes.

Investors in conforming loans gain low-risk income at a higher interest rate than they could gain from most other bonds.

The growth of lightly regulated derivative instruments based on mortgage-backed securities contributed to the 2007 subprime mortgage financial crisis.

Many banks, including Fannie Mae, established tighter lending guidelines after the housing bubble to make it harder to obtain a loan.

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Rocket Mortgage takes the top spot in both dollar amount and volume of loans closed, with $127,577,235,000 in dollar amount and 464,363 loans closed in 2022.

The largest nonbank mortgage lenders in the U.S. by dollar amount are led by Rocket Mortgage and United Shore Financial Services (United Wholesale Mortgage), with loanDepot coming in third.

In terms of volume of loans closed, Rocket Mortgage also takes the top spot, followed closely by United Shore Financial Services (United Wholesale Mortgage).

Here are the top 5 nonbank mortgage lenders in the U.S. by dollar amount:

Home Point Financial, which was previously a nonbank mortgage lender, sold its origination business in May 2023 and is no longer an active lender.