A financial analyst with FBR Capital Markets and Co. hasproduced a research report pointing to a strong market opportunityfor credit unions and other smaller mortgage issuers.

Paul Miller, managing director for FBR, wrote in the report thatat the end of the fourth quarter large banks were retreating fromthe mortgage market due to servicing issues and litigation, makingroom for smaller mortgage issuers to flourish.

“These issues have caused the large banks to allocate lesscapital to mortgage banking and have limited their ability tooriginate mortgages at the pace they have in the past,” Millerwrote in the research report. “This has created an opportunity forsmaller players to step up and fill the void while still attaininghealthy margins.”

Miller pointed to evidence that smaller regional banks such asPHH Mortgage, U.S. Bank, Provident Funding, BB&T and Fifth Third have more than doubled their market share since2007.

“We have even seen this dynamic play out for the smallerentities whereby they can double or even triple their market shareas the big banks have become capacity constrained,” he wrote.“Given the cost to the large banks to service mortgages, we expectthe smaller players to continue taking share as capacity is takenout of the system.”

He cited Bank of America's retreat from the market as being theopportunities' biggest driver and indicated that the trend islikely to continue.

“We believe this has been a major contributor to the rationalpricing we see in the market and should continue to open doors forsmaller players,” Miller wrote.