As banks pull back from making as many mortgages, due to the low interest rates leaving them with little in the way of profits, non-banks have stepped forward to meet the demand. Kroll Bond Rating Agency's recent report on the mortgage industry shows that the cost of making mortgages is beginning to take its toll on banks due to low returns. Although the cost itself has remained steady for these lenders, falling interest rates have led to falling profits on mortgages. Many banks have either scaled back the number of mortgages made or have come out of the mortgage market completely.
There are some ramifications from non-banks taking over more and more residential mortgages. Firstly, because these lenders generally have looser qualifying terms than banks, they have the potential to also take on a good share of the refinancing market. This, together with the lower interest rates, means that refinances could grow to new highs.
Kroll Bond summed up the year by stating that they believe the looser approval standards plus the increased number of repeat home buyers will make it a strong one for mortgages, but lenders of all types may want to be wary. This year will mark the sixth in a row of annual residential home price increases, which could lead to slow sales in the future.