Big banks JP Morgan Chase and Wells Fargo reported a sharp drop in loan volume in the first quarter of this year. This is important as they are the two largest mortgage lenders in the U.S. Two factors influencing this drop are a rise in mortgage interest rates and a significant increase in all cash purchases of homes, both over the last 12 months.
Both Fannie and Freddie have just revised their forecast for new-home construction and total home sales for this year. “Tight inventory may pose a significant challenge for home buyers in many markets across the country, which may result in higher home prices and sales being lower than expected,” says Frank Nothaft, Freddie Mac’s chief economist.
In addition, the bigger banks are focusing on deposit growth due to proposed liquidity rule changes. Community bankers are taking advantage of this, especially in the commercial area.
If you are an originator, appraiser, or title provider this isn’t good. But this is giving banks a chance to adapt to additional regulatory changes and the tougher underwriting that is occurring. Smaller community banks can adapt their staff easier to this change in volume than the larger banks. Those banks will be and have been changing to smaller and leaner operations. JP Morgan has reduced it’s mortgage unit by 30% (14,000 positions) while Wells has stated a reduction in 1,100 jobs in the residential mortgage division.
Single family home prices have increased 23% since March of 2012. These higher values are making it harder for banks to lend as the local appraiser is finding it difficult to justify such a rapid increase in home values.
There is one thing about mortgage lending, it never stays the same and the lean, innovative community banker CAN compete with the big lenders. That’s been proven time and again.