Nonbanks Issue More Than Two-Thirds of Mortgages in 2020

Recent industry research from Inside Mortgage Finance showed that nonbank mortgage lenders in the U.S. issued 68.1 percent of all mortgages in 2020, up from 58.9 percent in 2019. The increase is their highest market share and largest yearly gain since 2014.

Americans took out more mortgages in 2020 than ever before, as the coronavirus pandemic brought a lower rate on the 30-year mortgage, which fell below 3 percent for the first time. The Mortgage Bankers Association (MBA) found that lenders originated a record $3.83 trillion in home loans for the year.

“Earlier this decade, independent mortgage bankers were primarily gaining share in terms of the purchase business,” said chief economist at the MBA Mike Fratantoni, according to the Wall Street Journal. “But in the last several years, they’ve also gotten the majority of the refinance business as well. This is a continuation of that trend.”

Nonbank mortgage lenders do not take deposits or offer other banking services, and have managed to compete with traditional lenders in the last decade, as traditional banks still strategize to overcome the 2008 financial crisis. Nonbank lenders have made up over 50 percent of the market since 2016, and seven of the 10 largest mortgage lenders were nonbanks by the end of 2020.

Alternatively, nonbanks have struggled to cover payments to investors when millions of Americans opted to postpone their mortgage payments last spring. The Federal Housing Finance Agency then worked to cap payments that mortgage servicers must cover when borrowers are behind on their loans, and nonbanks were preparing to go public by summer.

Lenders are preparing for mortgage demand to decrease in the next few months as interest rates rise. The MBA expects mortgage originations to decline more than 9 percent to $3.47 trillion in 2021.