To paraphrase the opening line of Charles Dickens’ Tale of Two Cities, right now it’s both the best of times and the worst of times for independent mortgage banks (IMBs), or non-bank lenders. On the one hand, A.I. is beginning to reshape the contours of the entire mortgage ecosystem; new technologies are creating opportunities to streamline and drive efficiencies across the origination, underwriting and servicing sectors of the industry in ways that would have been almost unimaginable just a few years back. On the other hand, this new milieu of stubbornly high post-pandemic interest rates is putting the squeeze on nearly everyone. The Federal Reserve’s rate hikes are upending the playing field, pushing many IMBs out of business while driving a wave of consolidation among those who remain and are struggling to stay afloat.

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As with any period of major tumult, there are always those who manage to navigate turbulent waters with the finesse of a seasoned surfer. In the mortgage arena, a select few major non-bank lenders are emerging as formidable players, adeptly maneuvering through this pair of industry disruptions. These entities are not only weathering the storm but are also strengthening their positions and capturing significant market share amidst the chaos.

The Fed’s decision to begin raising interest rates in 2022 for the first time in more than five years to combat post-pandemic inflation cascaded directly into consumer financial products; from credit cards to auto finance, almost no corner of credit markets has been left unscathed by the Fed policy making. And among the areas most profoundly affected by these rate increases has been the housing sector.

To put it in perspective, the average retail mortgage rate jumped from around 3 percent in early 2020 to over 7 percent in mid-2024. According to the Mortgage Bankers Association, mortgage applications as of June decreased by nearly 15 percent year-over-year, and over 30 percent since the Fed first started raising rates to combat inflation in 2022, highlighting the significant elasticity between higher rates and market activity. Data released from federally-backed lender Freddie Mac showed that total mortgage originations more than halved from $4.8 trillion in 2021—before the first rate increase took effect—to less than $2 trillion in 2023. And the refinancing segment of the mortgage market has all but vanished, dropping from $2.8 trillion in 2021 to just $310 billion in 2023, a nearly 90 percent........

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