Big banks are not as profitable as their independent competitors when it comes to the retail residential mortgage business, according to the latest from STRATMOR Group.
Specifically, large banks lost $4,803 per retail mortgage loan in 2018. By comparison, large independent lenders earned on average of $376 per loan, according to STRATMOR, which said it uncovered the depth of the disparity during recent Mortgage Bankers Association and STRATMOR Peer Group Roundtable meetings that brought together 92 lenders.
According to the research group, the meetings highlighted that large banks were suffering from low revenues and high expenses, and that the “trend lines that are moving in the wrong direction.”
What gives? A number of factors play a role, according to STRATMOR.
First, big corporations come with big corporate expenses. In 2018, these costs totaled $3,654 per loan for the largest banks compared with just $1,213 per loan for large independents, the research group revealed.
Second, a number of large banks have stopped focusing on FHA and VA loans because of regulatory enforcement concerns, and this hurts profitability.
“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,” STRATMOR said.
Third, customers just don’t feel as connected to the larger entities, and this can hurt the bottom line. Big banks only captured 4% of the available mortgage volume from their customer base, compared with 8.1% at regional banks, STRATMOR pointed out. At the same time, large banks recaptured only 12% of their own customers who paid off an existing mortgage, compared with 30% at the large independents.
Fourth, large banks are far less nimble than their smaller, independent counterparts, and in a changing marketplace, this can make all the difference. “Many are simply not geared toward origination of purchase mortgages, a much more reliable production source than refinances,” STRATMOR said.
Fifth, loan officers working at big banks are not as incentivized to pursue referral sources for leads, while LOs working at some independent lenders can be aggressive in marketing to these channels for business. Moreover, corporate branding consistency at the big banks often prevents LOs from pursuing personal marketing.
A sixth factor: Big banks just aren’t as adept at leveraging technology, despite the fact that they spend more than four times as much money investing in digital capabilities.
“Large banks appear to have great difficulty translating technological expertise and resources into efficient technology support for the mortgage origination business,” STRATMOR said. “Large banks’ IT projects appear to get mired in process considerations and take years to roll out, if they are rolled out at all.”