Large banks lag far behind their independent competitors when it comes to making a profit on retail residential mortgages.
That’s one of the key findings from the mortgage advisory firm STRATMOR Group, which recently held a series of roundtables with the Mortgage Bankers Association that included 92 lenders over seven meetings in the spring.
“The trends we noted in the [peer group roundtable] large bank group were consistent with what STRATMOR has found across many of our large bank clients: Low revenues, high expenses and trend lines that are moving in the wrong direction,” STRATMOR Principal Tom Finnegan said in the firm’s recently released June 2019 Insights Report.
Specifically, large banks lost $4,803 per retail mortgage loan originated in 2018 compared to large independent lenders, which earned on average of $376 per loan.
“Large banks experience a significant disadvantage in the expenses we categorize as ‘corporate administration,'” Finnegan said. “Corporate administration costs amounted to $3,654 per loan in 2018 at the largest banks versus only $1,213 per loan for the large independents – a $2,441 per loan disadvantage for the large banks.”
Finnegan added that portfolio loans and jumbo loans are being priced aggressively by the banks, leading to imputed revenue that is lower than might be expected otherwise.
He noted that large banks as a group do not focus on FHA and VA lending to the same extent that independents do, and a few have virtually abandoned FHA lending due to the perceived risk of regulatory enforcement actions.
“Because FHA and VA loans typically offer the ability to price with wider margins, not participating in this loan segment can also contribute to lower per loan revenue,” he said.
With respect to customer retention, STRATMOR estimates large banks captured only 4 percent of the available mortgage volume from their customer base, compared to 8.1 percent at regional banks.
STRATMOR noted that many bank loan officers are not incentivized to pursue leads from referral sources outside the bank, such as realtors, while independent lenders are aggressive in their marketing to referral sources.
“One of the biggest reasons for this shift in power has been the independent’s ability to provide an exceptional customer experience, driving referrals from satisfied customers and traditional referrals sources,”STRATMOR MortgageSAT Director Mike Seminari said in a statement. “Whether bank or independent, the ability to improve the customer experience is largely dependent on the right data.”
