The mortgage lending industry is once again … slipping into darkness.[1]

Like the run-up to the financial crisis, we are seeing an increasing trend towards non-bank lenders dominating the mortgage market. To the tune of almost 65%.


Yes, lenders certainly spilled the wine[2] during the 2000s with its move to non-bank lenders like New Century Financial. By 2011, 50 percent of all new mortgage money was loaned by the three biggest banks in the United States: JPMorgan Chase, Bank of America and Wells Fargo. But by September 2016, the share of loans by these three big banks dropped to 21 percent.

The withdrawal of banks from the mortgage business is the result of the fundamental shift in regulations that took place in response to the housing crisis.  The regulatory atmosphere changed from a risk-management regime to a zero-tolerance and 100-percent-compliance regime.

Not only were new regulations implemented, but new regulators like the Consumer Financial Protection Bureau were created. At the same time, the CFPB and other agencies became more assertive in their enforcement practices.

The bottom line is that the rise of regulatory burden has chased lenders into the shadows where they reside as regulatory low-riders[3].

And there is no way to get the traditional depository institutions to be friends with regulators until a number of the overly burdensome regulations are eradicated.[4]

Yes, this is all eerily similar to the precursor to the financial crisis of the 2000s.

To paraphrase The Johnson Brothers, get that regulation out of their faces.[5]

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