Since his inauguration, President Trump and his administration have promised drastic changes in the US government, both in its foreign and domestic policies. Of particular interest to the housing market is the Trump administration’s efforts to deregulate the financial industry. In a series of executive orders, Trump is seeking to reduce the amount of regulation. On January 30th, he mandated that “for every one new regulation issued, at least two prior regulations be identified for elimination,” an order which directly limits the possibility of new regulations being created. In addition, Trump signed another executive order which may allow him to severely weaken, or even repeal Dodd Frank regulations. This order directs the Treasury Secretary to meet with other financial regulators to deliver a report outlining which aspects of the Dodd Frank regulatory legislation are effective.
These changes in the regulatory landscape may mean lower operating costs for banks such as JP Morgan, Bank of America, and Citibank, potentially allowing them to corner a greater proportion of market share. Since the financial crisis of 2008, loan originations by non-bank lenders have risen from 10% in 2010 to about 50% today. These figures may change in the future as more banks enter the mortgage industry. If this does occur, large banks will have advantages in their ability to draw upon the perception that they are somehow ‘safer’ and have larger resource pools to invest in marketing initiatives.
Despite the inherent advantages that larger banks may have, non-bank lenders typically have an edge when it comes to loan origination. One of the largest benefits of non-bank lenders are their lower fees, as big banks must charge extra fees to cover anticipated mistakes in their underwriting. In addition, larger banks may be more susceptible to regulatory breaches, as some of the largest banks have collectively paid in excess of $204 billion in fines, forcing them to raise prices and fees to cover losses. In addition, local non-bank lenders are more agile, allowing them to cater to individual customers’ needs as well as providing shorter turnaround times.
The Trump administration has declared its anti-regulation stance and is actively trying to deregulate the financial industry. It is with little doubt that the financial industry will see deregulation in the near future. Many experts agree that these changes will allow for large banks to enter the mortgage industry and increase their market share. Despite the advantages large banks have over correspondent lenders in both resources and manpower, correspondent lenders should not feel threatened by large banks entering the market. Independent bankers’ size means that they can be more competitive than bigger banks when it comes to pricing, product offerings, and quality of service.
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