Garnet Capital Advisors Blog

Non-bank lenders have been rapidly taking over market share from banks over the recent past.

Non-banks may have been taking over plenty of market share from banks over the recent past, but an increasing regulatory burden is forcing consolidation.

According to Freddie Mac's October Insight & Outlook report, non-bank lending institutions substantially expanded their market share to 48 percent by 2014. That's the highest these shares have been over the past two decades, which means non-bank mortgage companies have more than recouped their market share lost from the Great Recession.

Yet the risk profile of these institutions is much higher compared to banks.

One of the biggest trends that has led to the exponential growth of non-bank lenders is technological innovation, which has vastly improved the customer experience. Lending has never been faster and easier thanks to the digital innovation that non-bank lenders have brought to the table.

After the housing crash nearly a decade ago, heavy regulations that were imposed shortly after caused banks to retreat from mortgage lending, leaving a void that non-bank lenders were easily able to slip into. According to Inside Mortgage Finance, non-banks made 45.9 percent of mortgages in 2015, a jump from just 13.4 percent in 2011.

But heightened regulation has been pinching the pockets of non-bank lenders as well, who have already been dealing with narrow margins. According to Mortgage Bankers Association data, the average cost to originate a mortgage spiked 18 percent over the last two years.

Consolidation on the Horizon

With non-bank lenders facing tough regulations and increasing costs, consolidation is imminent. These companies must be bigger in order to effectively absorb regulatory costs.


Heightened regulations have spiked loan origination costs for non-banks, enticing the need for consolidation.

While bigger non-bank lenders like Quicken Loans may have enough clout to effectively handle the increase in regulatory costs, smaller home loan originators are not able to keep up with these expenses as easily. As such, they're more of a target for a takeover now more than ever before.

Fast Growth of Non-Bank Lenders Places Them Under Heightened Scrutiny

As non-bank institutions have grown rapidly over the recent past, they've been placed under heavier examination. The Consumer Financial Protection Bureau (CFPB) released rules regarding the Dodd-Frank Act to make the mortgage process easier to understand for consumers. These changes involved the simplification of forms and rules to hinder lenders from issuing mortgages despite some borrowers' inability to repay them.

As a result of these new CFPB rules, lenders have been forced to spend exorbitant amounts of money in an effort to comply. From additional staff, to training, to new technology, the efforts put forth by non-bank lenders has cost them a pretty penny. According to the Mortgage Bankers Association, the average loan production cost was $7,046 per mortgage in 2015, up from $5,948 in 2013.

Such costs are proving too much for smaller non-bank lenders to keep up with, hindering their ability to expand. As such, consolidation is expected.

Loan Advisors Help Non-Banks Remain Compliant Through Sale of Loans

At any time that there is consolidation in the lending sector, there are bound to be loans that fall out of transactions. Such loans require an experienced loan advisor to help ensure that these loans are sold in a compliant manner. If financial institutions want to remain in compliance, they need to follow the specific framework set forth by industry regulations.

By working with loan advisors at Garnet Capital, non-bank companies will have the advantage of consistent supervision of the loan sale realm. Take advantage of Garnet Capital's knowledge of loan portfolios and the regulatory environment of the lending industry as a whole; sign up for our newsletter today.