A financial analyst with FBR Capital Markets and Co. has produced a research report pointing to a strong market opportunity for credit unions and other smaller mortgage issuers.
Paul Miller, managing director for FBR, wrote in the report that at the end of the fourth quarter large banks were retreating from the mortgage market due to servicing issues and litigation, making room for smaller mortgage issuers to flourish.
“These issues have caused the large banks to allocate less capital to mortgage banking and have limited their ability to originate mortgages at the pace they have in the past,” Miller wrote in the research report. “This has created an opportunity for smaller players to step up and fill the void while still attaining healthy margins.”
Miller pointed to evidence that smaller regional banks such as PHH Mortgage, U.S. Bank, Provident Funding, BB&T and Fifth Third have more than doubled their market share since 2007.
“We have even seen this dynamic play out for the smaller entities whereby they can double or even triple their market share as the big banks have become capacity constrained,” he wrote. “Given the cost to the large banks to service mortgages, we expect the smaller players to continue taking share as capacity is taken out of the system.”
He cited Bank of America's retreat from the market as being the opportunities’ biggest driver and indicated that the trend is likely to continue.
“We believe this has been a major contributor to the rational pricing we see in the market and should continue to open doors for smaller players,” Miller wrote.