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Fitch: Nonbank mortgage profitability remains weak

Non-bank lenders may face more problems turning a profit by originating mortgages as interest rates rise, Fitch said in a recent report.

Profitability metrics for nonbanks “are generally weak,” the company said. Fitch evaluated five public non-bank companies, finding that expenses outpaced revenues by 21 percent. As interest rates rise,  nonbanks  also have higher funding costs relative to banks with stable depository funding.

“We expect consolidation to continue as a result of weak profitability, with non-bank lenders seeking scale efficiencies to combat rising rates, persistently high technology and regulatory compliance costs, and declining refinancing activity,” Fitch reported.

Non-bank lenders with multiple origination channels and servicing platforms should fare better, Fitch said.

“These lenders are generally less exposed to cyclical swings in the mortgage market, as the complementary nature of origination and servicing businesses can serve as a natural hedge, reducing earnings volatility,” Fitch said.


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