Nonbank mortgage lenders bounce back (© Andrew Bret Wallis/Getty Images)

© Andrew Bret Wallis/Getty Images

In the first half of the year, lenders that aren't banks made almost a quarter of all mortgage loans, the highest level since at least the financial crisis, according to data on the top 30 mortgage originators from industry newsletter Inside Mortgage Finance. (Bing: Top originators rankings)

Mortgage lending at big banks such as Wells Fargo & Co. and J.P. Morgan Chase has dropped more quickly than the rest of the industry in the wake of large mortgage-related legal settlements, new banking standards that require lenders to carry more capital, and increased scrutiny from regulators.

"Banks are just taking a break. This is an opportunity for us … The race is very early," said Anthony Hsieh, chief executive of LLC, a nonbank lender based in Foothill Ranch, Calif., and Plano, Texas.

Quicken Loans Inc., the largest mortgage lender outside traditional banks, made $24.3 billion of loans in the first half, putting it on a par with Bank of America Corp. and ahead of Citigroup Inc., according to Inside Mortgage Finance.

Nonbank lenders' rise is good news for some consumers who otherwise might not be able to get a bank loan in the current environment. For banks, this marks a retreat from a business that used to be very profitable but has turned into a legal and financial headache since the crisis.

Mortgage lending has declined across the board, mostly because of a sharp drop in refinances this year. In the first half, lenders made $530 billion in mortgages, 53 percent less than the first half of 2013, according to Inside Mortgage Finance. Nonbank lenders haven't been immune — Quicken's mortgage loans for that period were down 51 percent from a year earlier.

But specialized mortgage providers are taking a larger piece of the pie. Nonbank lenders among the top-30 originators made 23 percent of all mortgage loans in the first six months of the year, up from 17 percent in the first half of 2013 and 11 percent in the same period in 2012.

"Does the banks shifting their focus a little bit give us more opportunities to take market share? Of course it does," said Quicken Loans CEO Bill Emerson, who added that Quicken also has tried to get more aggressive in competing to make loans.

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Garyah Reed originally had a 30-year mortgage from Bank of America on the four-bedroom home in Goodyear, Ariz., that he bought in 2010. He decided to refinance his home, while cashing out some of his equity, in order to renovate the property and pay off credit card debt. He closed on a new loan in August with a company he had never heard of: Freedom Mortgage Corp., a Mount Laurel, N.J.-based nonbank lender that he found through a mortgage broker.

Reed's broker, William Acres, said that he has noticed that lately large banks have been unwilling to make loans to borrowers with less-than-pristine credit. "The large banks don't want to spend a lot of time working with people who have problems," Acres said. "They just say they can't help you and move to the next one."

Of course, less-creditworthy borrowers typically must pay a higher interest rate. On Aug. 27, Freedom's website quoted a 4.25 percent rate on a 30-year fixed-rate, $240,000 conventional mortgage for a borrower in New Jersey with a credit score above 720 willing to pay a down payment of 20 percent. The same mortgage for a borrower with a credit score between 620 and 679 would carry a rate of 4.875 percent.

The last time mortgage specialists grabbed a big share of the market was during the housing boom that preceded the crisis. Then, lightly regulated subprime lenders took the lead in originating exotic loans to buyers who ultimately couldn't afford them.

Now the nonbank mortgage leaders say they are catering mainly to safe borrowers and they view the current pullback by big banks as an opportunity to boost market share.

"One man's trash is another man's treasure. If the banks were not going to fill this requirement in our economy … we wanted our market share to go up as those opportunities in origination arise," said Freedom Mortgage Chief Stanley Middleman.