Big banks have drastically reduced their share of the Federal Housing Administration market, a massive shift that has big implications, according to new analysis by the American Enterprise Institute.
Large banks — which had a 60% share of FHA refinancings in late 2013 — had a 6% share as of May 31, according to Stephen Oliner, a resident scholar at AEI. Nonbank lenders currently originate 90% of FHA-insured refinancings, according to new data released by the group.
Large banks also had a 65% share of the FHA purchase market in 2012, which is now down to 20%, according to AEI.
"The shift away from large banks to nonbanks has been truly massive," Oliner said.
The recent drop in interest rates is expected to spur another surge in refinancings due to Britain's unexpected decision to leave the European Union.
But the large banks have decided that refinancing FHA loans is "not a good business" due to the regulatory environment and litigation risk, Oliner said.
"They are getting out," he said, noting that many FHA lenders have been sued under the False Claims Act and had to pay huge fines to the Justice Department.
Banks also don’t get Community Reinvestment Act credit for refinancings. "So this is pretty much a lose-lose business for them," Oliner said.
