A sign hangs from a Santander Bank branch in London, Britain, on Wednesday, February 2. 3, 2010.
Simon Dawson | Bloomberg via Getty Images
Banks and other mortgage providers have been affected by the drop in loan demand this year, as a result of the Federal Reserve’s decision. interest rate walks
Some companies will be forced to leave the industry altogether as refinancing activity dries up, according to Tim WennesCEO of the US division of Santander.
He would know: Santander, a relatively small player in the mortgage market, announced its decision to release the product in February.
“We were pioneers here and others are now doing the same calculations and seeing what happens with mortgage volumes,” Wennes said in a recent interview. “For many, especially smaller institutions, the vast majority of mortgage volume is refinancing activity, which is drying up and will likely prompt a reorganization.”
The mortgage business boomed during the first two years of the pandemic, fueled by rock-bottom financing costs and a preference for suburban homes with home offices. The industry recorded a record $4.4 billion in loan volumes last year, including $2.7 trillion in refinancing activity, according to mortgage data and analytics provider Black Knight.
But rising interest rates and still-undeclining home prices have put housing out of reach for many Americans and closed the path to refinancing for lenders. Rate-Based Refinances sunk 90% until April of last year, according to Black Knight.
‘Better impossible’
Santander’s move, part of a strategic pivot to focus on higher-yield businesses like its auto-lending franchise, now seems prescient. Santander, which has some $154 billion in assets and 15,000 employees in the US, is part of a global bank headquartered in Madrid with operations in Europe and Latin America.
More recently, the largest banks in mortgage lending, JPMorgan Chase Y fargo wells, have cut mortgage staffing to accommodate lower volumes. And smaller non-bank providers are reported to Fight sell loan servicing rights or even consider merging or partnering with rivals.
“The industry was as good as it gets” last year, said Wennes, a banking veteran of three decades who worked at firms including Union Bank, Wells Fargo and Countrywide.
“We looked at yields throughout the cycle, saw where we were headed with higher interest rates, and made the decision to get out,” he said.
Others to follow?
While banks used to dominate the US mortgage business, they have played a diminishing role since the 2008 financial crisis, in which home loans played a central role. In contrast, non-bank players like rocket mortgage they have absorbed market share, less encumbered by regulations that fall more on the big banks.
Outside Top Ten Mortgage Providers by loan volume, only three are traditional banks: Wells Fargo, JPMorgan and Bank of America.
The rest are newer players with names like United Wholesale Mortgage and Mortgage Freedom. Many of the firms took advantage of the height of the pandemic to go public.
To complicate matters, banks have to invest money in technology platforms to streamline the document-intensive application process to keep up with customer expectations.
And firms like JPMorgan have said increasingly onerous capital rules will force to purge mortgages your balance sheet, making the business less attractive.
The dynamic could make some banks decide to offer mortgages through partners, which is what Santander does now; lists Rocket Mortgage on its website.
“Ultimately, banks will need to ask themselves if they see this as a core product that they offer,” Wennes said.
