There are some interesting trends that have come out of the boom years of 2020 and 2021. The realignment of the mortgage industry should make us all rethink how we look at lenders by category. Rather than looking at bank-owned mortgage companies and independent mortgage companies, perhaps we should think of new categories.
For example, there are nonbank mortgage banking companies that are not truly independent. These could be categorized as nonbank but publicly owned or owned by Wall Street private equity or hedge fund investors. Clearly, they are not independent mortgage bankers (IMBs).
In fact, the Mortgage Bankers Association made clear a distinction that may be fading among nonbank lenders in their IMB White Paper published in 2019 where they stated, “IMBs are closely held private companies…..whose owners have skin in the game.”
Clearly, like all mortgage banking executive teams, there is a fiduciary feeling of responsibility that rests on these leadership teams. In many cases, the original founders still run these companies even after going public or selling a large equity position. But as we have seen even in recent moves, the CEO is a hired executive in many of these public nonbank lenders and Wall Street-owned firms. CEOs can come and go, but the firm keeps going.
But unlike the IMB of old, the past few years have truly changed the landscape. We watch the stock prices of public nonbank mortgage companies in the same manner in which we watch public bank stocks. The era of the truly Independent Mortgage Banker has changed.
Just take a look, for example, at the recent list published by Inside Mortgage Finance (listed with permission, subscription required to see full list) of the top lenders in 2021:
1. Rocket Mortgage (Quicken), MI
2. PennyMac Financial, CA
3. United Wholesale Mortgage, MI
4. Wells Fargo & Company, IA
5. Chase, NJ
6. NewRez/Caliber, PA
7. loanDepot.com, CA
8. Freedom Mortgage Corp., NJ
9. Guaranteed Rate Inc., IL
10. U.S. Bank Home Mortgage, MN
11. Home Point Financial, MI
12. Mr. Cooper Group, TX
13. Amerihome Mortgage, CA
14. Bank of America Home Loans, NC
15. Fairway Independent Mortgage Corp., WI
16. Truist, NC
17. Better.com, NY
18. Flagstar Bank, MI
19. Lakeview Loan Servicing, FL
20. Citizens Bank, RI
What’s interesting is that, while there are many nonbank lenders on the list, very few are truly IMBs – independent mortgage bankers owned and operated by their founder without shareholders or beholden to Wall Street investors. And while several on the list have, to their credit, turned their founders into billionaires and their CEOs have rung the closing bell on Wall Street, there will be likely differences between a public and truly privately owned IMB going forward.
While hard to tell how this plays out over time, the lines are blurring. On the above list, for example, Fairway is still a true IMB by the definition described here. Does that mean that the CEO of this company can withstand the margin compression and market shifts with more patience than some others simply because he does not have to respond to market (street) expectations?
Regardless of what happens going forward, we have definitely seen a paradigm shift in the market that has created this new form of nonbank mortgage company that perhaps cannot claim to be an IMB anymore but perhaps can behave more like a bank-owned mortgage company due to access to a broader range of capital sources. On the other hand, the truly independent mortgage bankers won’t be on CNBC explaining quarterly earnings drops in a declining market — a benefit to independence.
We will watch the next few years as this market shifts, the business gets harder as profits and margins shrink, and the implications to banks, nonbanks, and IMBs becomes clearer. But for institutions like the Mortgage Bankers Association and its members, the need to represent IMBs, nonbank mortgage bankers, and bank lenders needs a closer look when selecting board positions and leadership roles.
It’s no longer as easy to look simply at bank and nonbank when evaluating equality in leadership. The policy needs of various lender categories, now at least three, may have differences going forward. And true IMBs in particular need to make sure that their voice is heard, not just at the MBA, but broadly in state associations and with policy makers in Washington D.C. The implications to debates on capital, affordable lending policy, and other policy considerations within the GNMA programs and with the GSEs are just the tip of the iceberg as we look forward.
David Stevens has held various positions in real estate finance, including serving as senior vice president of single family at Freddie Mac, executive vice president at Wells Fargo Home Mortgage, assistant secretary of Housing and FHA Commissioner, and CEO of the Mortgage Bankers Association.
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Great, important points David, I mostly agree, but don’t think we need a new IMB monicker because IMBs generally carry most market share through full cycles. Yes, more “sophisticated” structures (banks, public/VC/PE nonbanks, etc.) can have bigger market share slices at the top 20, but still, IMBs collectively maintain majority share over time. Below I’m adding IMF top 20 from 2011 as a comparison to your current top 20. Two notable things: (1) a lot of banks and public firms, (2) leading players change over time. And as you know, this top rank shuffle is same when you go back further. But true-blue IMBs (by your/MBA definition) still hold collective majority share cycle through cycle, bringing stability and expertise to housing and to all U.S. communities our industry serves. Let the top players scuffle and shuffle, and let true IMBs do their long game.
IMF Top 20 Lenders In 2011
7. US Bank
8. Quicken Loans
14. Fifth Third
16. Franklin American
18. Sovereign Bank
20. ING Bank