Small Originators Filling Footprint of Rivals: Report

Smaller mortgage originators are stepping up to the plate to make loans as larger lenders, encumbered by mounting litigation and repurchase claims, pull back from the servicing sector, according to a report released Thursday.

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Paul Miller, a financial analyst with ""FBR Capital Markets"":http://www.fbr.com/, based conclusions from the report on quarterly shares of market activity.

""The mortgage origination market has changed dramatically over the past few years because the large banks are pulling back from the market as they deal with servicing issues and repurchase claims,"" he wrote.

He credited moves by ""Bank of America"":https://www.bankofamerica.com/ to reduce its mortgage servicing footprint as one of the reasons why smaller lenders, including ""PHH Mortgage"":http://www.phhmortgage.com/ and ""Quicken Home Loans"":http://www.quickenloans.com/, more than doubled their share of the mortgage market by the third quarter this year.

Other ambitious, smaller lenders include ""U.S. Bank"":http://www.usbank.com/index.html, ""Provident Funding"":https://www.provident.com/, ""BB&T"":http://www.bbt.com/, and ""Fifth Third"":https://www.53.com/site/index.html?%3f, among others.

Servicing issues and repurchase claims discourage larger banks from allocating capital, he wrote, creating ""an

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opportunity for smaller players to step up and fill the void while still attaining healthy margins.""

His analysis fronted three examples. PHH acquired 3.8 percent of the market share, up from 1.6 percent from 2007, with USB next in line at 3.5 percent, an increase from 1.3 percent from the same year. Quicken came last with a claim on 2.1 percent, up from 0.5 percent.

Withdrawing mortgage lenders continue to cite litigation expenses and onerous new rules for their decisions to take leave of the industry.

After failing to find a buyer, Bank of America announced that it would close down its correspondent lending unit in August. Two big lenders sold servicing rights and operations to ""Ocwen Financial Corp."":http://www.ocwen.com/, which signed up for the servicing arm from ""Morgan Stanley"":http://www.morganstanley.com/ for $59.3 million in October and ""$15 billion in mortgage-servicing rights"":https://themreport.com/articles/ocwen-set-to-buy-15-billion-in-msrs-from-jpmorgan-2011-11-11 from ""JPMorgan Chase"":https://www.chase.com/ for $950 million in November.

Smaller lenders meanwhile continue to expand nationally, with ""BB&T assuming $3.3 billion in low-cost deposits and 78 branches from Florida-based BankAtlantic"":https://themreport.com/articles/bbt-scoops-up-bankatlantic-scrimps-on-bad-assets-2011-11-01 in November, a move that made it the sixth largest franchise in the Miami market.

Miller cited a ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm (MBA) report that predicts originations will squeeze by about 28 percent over 2012, reducing a historically trillion-dollar market to $935 billion.

He also said that modifications to the Home Affordable Refinance Program would likely increase originations to $1.2 trillion over next year.

He said that it is unlikely to see any reversal of the current trend anytime soon.

""Given the cost to the large banks to service mortgages, we expect the smaller players to continue taking share as capacity is taken out of the system,"" he wrote.