Two weeks ago, The Wall Street Journal published an article about the “partial” myth of concentration in the mortgage market. According to the author Nick Timiraos:
It’s become a popular argument these days, as banks continue to report rising profits on mortgage banking, that one of the problems with the mortgage market is that it’s more consolidated and that, as a result, consumers have fewer choices when it comes to getting a home loan.
The problem with that argument is that it isn’t entirely supported by actual data.
The support for this position is that the market share of the top 10 mortgage lenders has hardly changed over the last six years. In 2006, the figure stood at 35.2%. Five years later, it had increased to 36.9%. To emphasize Timiraos’ point, we’re not talking about a massive swing here:
Source: Federal Reserve.
But while it’s true that the cumulative market share of the largest lenders hasn’t changed much, it isn’t similarly true that the market share within this group has stayed static as well.
In 2006, Countrywide Financial was the nation’s largest mortgage originator with 8.1% of the market. By 2011, Countrywide was no more, having been acquired by Bank of America Corp (NYSE:BAC) in 2008. When all was said and done, however, Countrywide’s 8.1% market share only translated into a 1.8 percentage point gain for B of A.
Meanwhile, both JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Company (NYSE:WFC) more than doubled their respective shares of the market. JPMorgan’s was fueled by its 2008 purchase of Washington Mutual, the nation’s largest savings and loan association at the time. Wells Fargo’s was spurred on by its acquisition of the fourth-largest bank holding company, Wachovia, that same year.
Since then, as the headline suggests, Wells Fargo has gone on to demonstrate what complete domination of a market looks like. This is particularly evident when its success is juxtaposed against Citigroup Inc. (NYSE:C) and particularly B of A’s failures in this regard.
Sources: Company filings.
If you were wondering where the remainder of Countrywide’s market share went, I suspect this may be a good place to start. Throughout 2010, B of A originated an average of $75 billion in mortgages a quarter. By last year that number had fallen to only $20 billion.
There are a number of explanations for B of A’s retreat here. At the end of 2010, it exited the mortgage wholesale channel, severing ties with the thousands of mortgage brokers that had previously originated mortgages for the banking giant. It subsequently shuttered its correspondent-lending division in August of 2011. And in February of last year it stopped selling purchase-money mortgages to Fannie Mae, depriving itself of a pivotal outlet for its origination volume.
