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A ‘shakeout’ among mortgage lenders is coming

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A sign at a Banco Santander branch in London, England, Wednesday, February 3, 2010.

Simon Dawson | Bloomberg via Getty Images

Banks and other mortgage providers have been hit by the Federal Reserve’s plunge in loan demand this year. interest rate hiking.

Some companies will be forced to exit the industry entirely as refinancing activity dries up. Tim WensCEO of the US Division Santander.

He would know: Santander, a relatively small player in the mortgage market, has announced its decision drop February product.

Wenes said in a recent interview, “We were the first to move here, but others are doing the same math to see what’s going on with mortgage volumes.” Especially for smaller institutions, a large portion of mortgage volume is refinancing activity, which is drying up and likely causing a squeeze.”

The mortgage business experienced rapid growth during the first two years of the pandemic. As funding costs have bottomed out, suburban homes with home offices are favored.industry set a record $4.4 trillion Last year’s lending included $2.7 trillion in refinancing activity, according to Black Knight, a provider of mortgage data and analytics.

But with interest rates soaring and home prices yet to fall, housing is out of reach for many Americans and lenders’ refinancing pipelines are shutting down.rate-based refinancing Sunken 90% According to Black Knight, from last year until April.

“Does not matter”

Santander’s move, part of a strategic shift to focus on profitable businesses like car-lending franchises, now seems far-sighted. With approximately $154 billion in assets and his 15,000 US employees, Santander is part of a Madrid-based global bank with operations in Europe and Latin America.

Recently, major banks of housing loans, JP Morgan Chase When wells fargo, we are reducing mortgage staffing to accommodate lower volumes. Also, smaller non-bank providers scrambling We may even sell loan servicing rights or consider mergers or partnerships with competitors.

“The sector was great,” said Mr. Wens, a 30-year veteran of banks including Union Bank, Wells Fargo and Countrywide, last year.

“We looked at returns over the cycle and where interest rates were headed and decided to pull out,” he said.

who else to follow?

Banks once dominated the US mortgage business, but their role has diminished since the 2008 financial crisis, when mortgages took center stage.Instead, non-bank players rocket mortgage It is absorbing market share and easing the regulatory burden that has been weighed down by the larger banks.

out of Top 10 Mortgage Providers In terms of loan amount, the traditional banks are Wells Fargo, JP Morgan, bank of america.

The rest are new players with names like United Wholesale Mortgage and free mortgage. Many companies took advantage of the pandemic boom to go public. Their stock is now very submerged and could trigger a consolidation of the sector.

Complicating matters, banks must invest in technology platforms to streamline document-intensive application processes and meet customer expectations.

It also says companies, including JP Morgan, have increasingly onerous capital controls. force the mortgage to be wiped out It makes the business less attractive from the balance sheet.

This dynamic may lead some banks to decide to offer mortgages through partners. This is what Santander is doing now.It lists rocket mortgages on it website.

“Banks ultimately need to ask themselves whether they consider this a core product they offer,” said Wenes.

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