A sign hangs from a Banco Santander branch in London, UK, on Wednesday, February 3, 2010.
Simon Dawson | Bloomberg via Getty Images
Banks and other mortgage providers have been battered by falling loan demand this year, as a result of the Federal Reserve interest rate Long walk.
He’ll know: Santander – a relatively small player in the mortgage market – has announced his decision drop products in February.
“We were the first to come here and others are now doing the same math and seeing what is happening with mortgage volume,” Wennes said in a recent interview. “For many people, especially smaller institutions, the bulk of mortgage volume is refinancing, which is drying up and is likely to lead to a shake-up.”
Mortgage business boomed during the first two years of the pandemic, fueled by low financing costs and a preference for suburban homes with home offices. The industry posted a record of news 4.4 trillion dollars in lending volume last year, including $2.7 trillion in refinancing, according to mortgage data and analytics provider Black Knight.
But soaring interest rates and still-still home prices have kept many Americans out of homes and shut down the pipeline to refinance lenders. Rate-based refinancing sink 90% until April from last year, according to Black Knight.
Santander’s move, part of a pivot to focus on higher-yielding businesses like auto loan franchises, now looks like a predictable move. Santander, with assets of around $154 billion and 15,000 American employees, is part of a global bank based in Madrid with operations across Europe and Latin America.
Recently, the largest banks lending to buy houses, JPMorgan Chase and Wells Fargo, cut mortgage staffing levels to adjust to lower volumes. And smaller non-banking providers are reported as dispute to sell loan processing rights or even consider merging or partnering with competitors.
“The sector is as good as it is today,” said Wennes, a three-decade banking veteran who has served at companies including Union Bank, Wells Fargo and Countrywide.
“We looked at returns throughout the cycle, saw where we were headed with higher rates and made the decision to pull out,” he said.
While banks once dominated the US mortgage business, they have played a role since the 2008 financial crisis, in which home loans played a central role. Instead, non-bank players prefer Rocket Mortgage already dominated the market share, less hindered by regulations imposed more on the big banks.
The rest are newer players with names like United Wholesale Mortgages and Free Mortgages. Many of these companies have taken advantage of the pandemic outbreak to list shares to the public.
Complicating matters, banks have to pour money into technology platforms to streamline the document-intensive application process to keep up with customer expectations.
And companies including JPMorgan have said that capital rules are getting more complicated will force it to pay its mortgages from its balance sheet, making the business less attractive.
This dynamic may lead some banks to decide to offer mortgages through partners, which is what Santander is currently doing; it lists Rocket Mortgage on website.
“Banks will ultimately need to ask themselves if they see this as the core product they are offering,” Wennes said.