The drop in employment is part of an ongoing trend of consolidation and contraction in the nonbank mortgage sector as smaller lenders and servicers exit the market due to increasing regulations and low rates.
In May, there were 294,400 employees in the nonbank mortgage sector, down from 308,800 in April and 313,000 in March. This decline marks a 6.3% decrease in just two months and a 5.7% fall since February. Year-over-year, nonbank mortgage jobs have dropped 9.5%, from 324,200 positions in April 2020.
The contraction in the nonbank mortgage sector is a result of increased government regulation and the low interest rate environment. Regulations such as the Dodd-Frank Act have placed higher capital requirements on lenders, making it difficult for smaller companies to remain competitive. Additionally, low interest rates have reduced revenue opportunities for nonbank mortgage lenders.
Furthermore, larger banks are increasingly squeezing out niche lenders and servicers from the mortgage industry. Many nonbank participants find it difficult to compete against the larger financial institutions which are able to offer access to better technology, capital, and more favorable loan terms.
In spite of the drop in nonbank mortgage employment, other sectors of the housing industry remain robust. The residential real estate market has been on a tear in 2021, fueled by low interest rates and record levels of home building. Consequently, employment in residential construction increased 2.2% in April and 11.2% since this time last year. Construction of single-family homes is especially strong, as builders race to meet the demand from buyers.
Overall, the latest figures indicate that the nonbank mortgage sector is continuing to contract due to increasing regulation and competition from larger banks. This is in contrast to the residential real estate market, which is experiencing a resurgence thanks to low interest rates and record levels of home building. Nonbank lenders and servicers must find creative ways to stay competitive in order to survive in an increasingly challenging landscape.
The contraction of nonbank mortgage employment has been a steady trend for the sector since the global pandemic began. The latest data from the Bureau of Labor Statistics shows that employment in the sector has dropped 9.5% year-over-year, resulting in 294,400 positions in May 2021. This marks a decrease of 6.3% in the last two months alone. The decline is being driven by a combination of increasing government regulation, low interest rates, and the rise of larger banks that are squeezing out niche lenders and servicers.
Regulatory changes such as the Dodd-Frank Act have made it difficult for smaller lenders and servicers to stay competitive due to the higher capital requirements. Additionally, low interest rates limit revenue opportunities, creating an additional challenge. Furthermore, larger banks have an advantage over smaller players in terms of technology, capital, and loan terms, creating an extra hurdle for nonbank mortgage companies.
In stark contrast to the falling employment in the sector, the residential real estate market is on a tear. Low interest rates and record levels of homebuilding have driven the residential construction sector up 11.2% year-over-year, with single-family homes leading the way.
Due to the challenging environment, nonbank mortgage companies must find creative ways to stay competitive if they want to survive. Larger banks have the upper hand in terms of technology, capital, and loan terms. Smaller lenders and servicers must find ways to remain flexible and agile in order to succeed in the current market.
This article was contributed on Nov 07, 2023
