The mortgage market in the United States: non-banks dominate

Kop-Munt,  Saturday, 30 September 2017

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In recent years, the US mortgage market has changed dramatically. In 2011, Wells Fargo, Bank of America and JPMorgan Chase signed nearly half of all new mortgages. These three major powers are still important players, but their hegemony came to an end: in 2016 they were responsible for one- fifth of the new mortgage applications.

The place of the three traditional banks is occupied by specialized mortgage providers such as Quicken Loans, PennyMac and Freedom Mortgage. These financial institutions, which merely provide mortgages, almost doubled their market share in five years to more than 17 percent in 2016. Analysts predict that this trend will continue in the coming years.

Stricter regulation since the crash

New watchdogs such as the Consumer Financial Protection Bureau have been tightening control since the credit crunch in 2008, which led banks to withdraw from the residential mortgage market, which last year had a size of 9.8 trillion euros. Banks still focus mainly on providing virtually risk-free mortgages: those who do not fit in with the perfect picture are shown the door. As a result, house ownership is declining, particularly in economically weaker areas. As the licenses of mortgage providers are regulated on a state- by-state basis, some providers avoid certain states entirely. Some analysts expect that under Trump the regulatory burden will decrease, but as yet there is little evidence of this.

Extremely poor reputation mortgage advisors

Another consequence of the crash is that mortgage consultants, who were responsible for the lion's share of new mortgages, have suffered a considerable setback. In 2013, according to Inside Mortgage Finance, their share fell below 10 percent as consultants have gained a poor reputation. Better regulation - federal regulation prohibits advisers from taking money from mortgage providers when they steer customers to a more expensive mortgage - slowly improves their image. As a result, market share is increasing gradually, although many mortgage providers choose to win customers only through their channels.

The average interest rate on new loans was 3.65 percent last year, with an interest rate fixed ten years, according to figures from the Federal Reserve. Americans are required to provide at least 10% of equity capital. It is common practice to deposit 20 percent because many mortgage providers require additional repayment insurance from LTVs over 80%.

Significant differences in house prices

Last year, US house prices returned to their 2006 level for the first time, after having reached a low point in 2011 and lost 20% of their value compared to five years previously. However, regional differences are significant: in Washington, the value of houses is now almost half as high as in 2006, while in Los Angeles, homes were still worth 6% less than ten years ago.
The US has dozens of schemes to promote home ownership. The FHA loan is the most famous. There are support measures for agricultural areas, war veterans, and police officers and there are support programmes from FNMA (Fannie Mae) and FHLMC (Freddie Mac) - the companies with which the sub- prime crisis started - that help local mortgage providers to provide low and middle-income mortgages.

The wrong provider selected

American consumers are usually not so happy with their mortgage lenders, according to a study by credit rating agency JD Power, according to which 27 percent of the home market entrants claim to have chosen the wrong provider. Lack of good communication is the biggest source of irritation.

Creative Commons-Licentie This article of is subject to a license. Based on . Translated from the Dutch language by Jos Deuling.  

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