For years, the nation’s largest banks have dominated an increasingly large portion of the mortgage market. As noted by Mother Jones, in the past several decades a field of 33 banks has been consolidated into four: Citigroup, JP Morgan Chase, Bank of America and Wells Fargo. The top ten mortgage originators rode this wave to control 80 percent of the market by 2010, according to Fannie Mae’s Economic & Strategic Research Group.
There are a number of reasons for this trend. According to an article on Mortgage News Daily, the largest banks can take advantage of economics of scale and offer their customer a better product at a lower cost. In addition, the aftermath of the financial crisis has led to a slate of new rules and regulations for the industry. Since this means that financial products will be more standardized going forward, banks will yet another reason to rely on pricing to gain customers.
Though large banks have a number of natural advantages, this does not mean that small community banks cannot play to their strengths and gain market share in this environment. As the news source notes, smaller banks are capable of being much more nimble than large lenders. Whereas the nation’s largest banks cannot react to a change in the market without some significant planning and preparation, their smaller competitors can take such an opportunity to get ahead of the curve.
It is true that small banks still face more risk whenever they give out a loan, since they are lending less money in total. But with risk assessment tools, the chances of a disaster can be minimized.
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