FDIC QUARTERLY 51 2019 • Volume 1 3 • Number 4
TRENDS IN MORTGAGE ORIGINATION AND SERVICING: Nonbanks in the Post-Crisis Period Introduction The mortgage market changed notably after the collapse of the U.S. housing market in 2007 and the financial crisis that followed. A substantive share of mortgage origination and servicing, and some of the risk associated with these activities, migrated outside of the bank- ing system. Some risk remains with banks or could be transmitted to banks through other channels, including bank lending to nonbank mortgage lenders and servicers.1 Changing mortgage market dynamics and new risks and uncertainties warrant investigation of poten- tial implications for systemic risk. This article covers trends in the volume of 1–4 family mortgages outstanding, migration of mortgages between market participants, and the drivers of these shifts. Next, the article discusses trends in residential mortgage origination and servicing from 2000 to early 2019 and discusses the landscape of the mortgage industry, key characteristics of nonbank origi- nators and servicers, and the potential risks posed by nonbanks. Last, the article contem- plates the implications that the migration of mortgage activities to nonbanks may have for banks and the financial system. Trends in the Volume of and Mortgage originators and servicers have long competed for market share through innova- Competition for 1–4 Family tions in capital markets, customer service, and funding and business structures, and in Home Mortgage Loans applying technology to make processes more efficient and cost-effective. The composition and the concentration of the dominant market participants have varied with developments in regulation, government intervention and guarantees, primary and secondary mortgage markets, securitization, technological innovation, dynamics in housing markets, financial markets, and the broader economy.
[Show full text]