Allentown Morning Call, January 24, 2014
As the largest banks in the country lose market share in the residential lending sector, small community banks are picking up the slack. According to some experts, that’s good for the economy and the homebuyer.
The largest mortgage lenders, Wells Fargo and JPMorgan Chase have slashed residential lending. At Wells Fargo, residential loans dropped by $50 billion, or 38 percent, in third quarter of 2013. Likewise, JPMorgan Chase saw a $23 billion drop to mortgage originations, a 42 percent decline.
Reduction in Refinance
Part of the reason is that the biggest banks dominate the refinance industry, and refinancing activity has declined a great deal.
Walter Molony, economic spokesman for the National Association of Realtors, suggests that large banks should start lending more.
Small Banks Step Up
As the market shifts from refinancing to purchasing, the community banks are building momentum.
“We’ve been expecting this occur,” Molony says. He says the shift to community banks is good news for homebuyers and small business owners, homebuilders in particular.
By focusing on customer service, local market expertise and small businesses, community banks are reaching out to customers who were abandoned during the housing market collapse.
When local banks thrive, communities prosper, says Stacy Mitchell, director of the community banking initiative at the Institute for Local Self-Reliance in Washington, D.C. She says the “fortunes of local banks and credits unions are intimately tied to the fortunes of their local communities.”
The primary goal of a community bank is to turn local deposits into loans for the community. “Loan approvals and other key decisions are made locally by people who live in the community, have face-to-face relationships with their customers and understand local needs.”
Many of the nation’s homebuilders are small business owners. Those builders have been watching the market cry out for additional inventory but lacked the construction loans to add the necessary new housing stock.
“Banks now have an incentive to lend,” Molony says.