Shadow banks like Quicken Loans have a bigger share of the mortgage market than they did back in 2007. That may not be a good thing, because their capitalization is thinner than banks’. From Wolf Richter at wolfstreet.com:
As banks pull back from mortgage lending amid inflated prices and rising rates, “shadow banks” become very aggressive.
In the first quarter 2018, banks and non-bank mortgage lenders – the “shadow banks” – originated 1.81 million loans for residential properties (1 to 4 units). In the diversified US mortgage industry, the top 10 banks and “shadow banks” alone originated 260,570 mortgages, or 14.4% of the total, amounting to $75 billion. We’ll get to those top 10 in a moment.
Banks are institutions that take deposits and use those deposits to fund part of their lending activities. They’re watched over by federal and state bank regulators, from the Fed on down. Since the Financial Crisis and the bailouts, they were forced to increase their capital cushions, which are now large.
Non-bank lenders do not take deposits, and thus have to fund their lending in other ways, including by borrowing from big banks and issuing bonds. They’re not regulated by bank regulators, and their capital cushions are minimal. During the last mortgage crisis, the non-bank mortgage lenders were the first to collapse – and none were bailed out.
So let’s see.
Of those 1.81 million mortgages originated in Q1 by all banks and non-banks, according to property data provider, ATTOM Data Solutions:
- 666,000 were purchase mortgages, up 2% from a year ago
- 800,000 were refinance mortgages (refis), down 11%from a year ago due to rising interest rates.
- 348,000 were Home Equity Lines of Credit (HELOCs), up 14% from a year ago
HELOCs, which allow homeowners to use their perceived home equity as an ATM, are once again booming: $67 billion were taken out in Q1, though that’s still less than half of peak-HELOC in Q2 2006, when over $140 billion were taken out.
To continue reading: Next Mortgage Default Tsunami Isn’t Going to Drown Big Banks but “Shadow Banks”
