Too big to fails not interested in mortgages

The nation's once top mortgage lenders, the biggest banks, are a fading force in the housing economy.

FBR Capital Markets [FBRC] released its latest report on mortgage origination volumes and found that, among the big four banks, home loan lending is at its lowest level in a decade.

Origination volumes are currently at $305 billion in the fourth quarter, down from $460 billion in the quarter preceding. FBR still projects an estimated $1.3 trillion in overall originations for 2014 is achievable.

The news is a departure from estimations from the Mortgage Bankers Association. Last month, the MBA lowered its forecast for 2014 mortgage originations by $57 billion to $1.12 trillion.

"Big banks continue to shed market share with the five largest producers responsible for just over 30% of activity compared with 60% to 70% pre-crisis," write report authors Jessica Levi-Ribner, Thomas LeTrent and Travis Potts. "This trend should continue as Wells Fargo and other money center banks cut headcount in their mortgage banks and narrow their focus to originating to core customers."

The share of the Top 4 is now only 34% of the market, compared to 50% in 2012 and 62% in 2009. However, FBR said its $1.3 trillion estimation is still a possibility, just not through those once-traditional lending channels.

"As a result, smaller originators are becoming a more meaningful part of the market, and we expect players like Flagstar [FBC], Stonegate Mortgage [SGM], HomeStreet [HMST], PennyMac Mortgage [PMT] and PennyMac Financial [PFSI] should benefit," the analysts add.

They also note that in an environment of falling interest rates, origination activity could actually surpass said estimation.

"All eyes remain on the spring buying season in order to get a sense of what full-year originations will look like," they said, adding that a proactive federal government could lend additional support.

"Much of Washington wants to expand mortgage credit availability and maintain affordability," they added. "We believe that the new director of the FHFA, Mel Watt, will lead the efforts of opening up credit availability at Fannie and Freddie. Should he be successful in doing so, the purchase market could get a meaningful lift."