An opportunity for credit unions and community banks to step up as big banks step away

Recent data from the Consumer Financial Protection Bureau reveal two home buying trends that, when taken together, could offer a chance for smaller lenders to meet more borrowing needs. 

For one, only 26.3 percent of home loan borrowers in 2017 had low-to-moderate incomes, down from 36.6 percent in 2009. This is partially due to new federal rules aiming to avoid another subprime lending-caused crisis, and partially the result of housing costs skyrocketing, making it difficult for people of modest means to take part in the market.  

But the data show another trend: many of the nation’s largest banks are moving away from mortgage lending entirely. The big banks are deemphasizing mortgage lending and focusing on other products, like credit cards, which for them carry larger profit margins. So far, non-banks have chosen to double down as big banks drift away from mortgage.

According to CFPB data, non-banks now originate 56 percent of all home loans. In fact, the biggest mortgage lender isn’t a bank at all. In 2017, Quicken Loans originated 27 percent more loans than its nearest competitor, Wells Fargo. All told, only 15 percent of the new mortgage borrowers at the nations' three largest banks were low-income, compared to 29 percent for the three largest non-banks.

The demand for housing among low-to-moderate income buyers, and all buyers in general, remains strong. And with the biggest lenders focusing on other things, credit unions and smaller banks may be able to step in and fill the void.

Sources: CFPB Report: Data Point: 2017 Mortgage Market Activity and Trends; CNNMoney.com