Filling the mortgage market void
Even as it shows signs of gathering strength, the mortgage market remains somewhat fragmented, dominated by a few players.
Wells Fargo is now tops in the industry. The bank now controls about one-third of the market, and some think it is aiming to control about 40 percent. Conditions are favorable for the mortgage market. Interest rates are low and the job situation is improving. Home prices are rising. Buyers seem to be more interested. But the market could be even more competitive if more banks were to reassert themselves.
The Washington Post quotes one expert who notes that, "You have less competition, and as a result the pricing has gotten worse. Mortgage rates should probably be closer to 3.25 rather than 3.5. One of the reasons they aren't is because banks aren't that competitive and don't have to be to get business."
I think that this situation will slowly correct itself. The fact is that the mortgage business provided some nice offsets to the weakness in investment banking last year for several top banks, which are starved for revenue growth. The settlements seen in this week for Bank of America and other top banks will hopefully create more certainty about the market going forward, emboldening more than Wells Fargo and JPMorgan.
For the market to thrive, more competitors will have to rush in to fill the void left by Bank of America. Hopefully, there will be a surge in smaller lenders becoming more aggressive.
- here's the Post article