The largest nonbank mortgage companies continue to grow even bigger as the mortgage market has consolidated during the past two years, according to a new peer review by Fitch Ratings.
As a sign of their recent growth, Fitch upgraded ratings for Rocket Mortgage to BBB- and PennyMac Financial Services to BB. Fitch also revised the outlook for United Wholesale Mortgage to positive from stable. The provider of credit ratings announced that the upgrades reflected the strengthening of the largest mortgage companies, which have gained market share as smaller players leave the industry.
The top 10 nonbank companies produced 40% of the total origination volume in the first nine months of 2024, compared to 38.5% in the fiscal year 2023 and 36% in 2022. Fitch writes that the broker and correspondent channels remain dominated by only a few players, while the retail market is more fragmented.
In another sign of how inflation and high interest rates have impacted the mortgage industry, employment in the field has fallen 35% since its peak levels in 2021. However, better days may be ahead. Fitch writes that profitability should improve in 2025 as interest rates drop, causing origination volume to increase and stronger gain-on-sale margins.
In the meantime, companies that failed to hedge their portfolios in the third quarter may face mortgage service rights (MSR) markdowns as mortgage rates fell at the end of the third quarter, leaving some issuers feeling the pain. Guild Mortgage Holdings, for example, reported a third-quarter net loss of $66.9 million, mainly due to falling interest rates and value adjustments on MSRs.
