Lawrence’s Ayer Mill is seen through the gears of an old canal sluice gate. With lending products already in their portfolios that offer cheaper mortgages to first-time buyers, an advocate says banks have an opportunity to take market share from mortgage companies in the state’s industrial Gateway Cities. iStock photo

A new analysis suggests Massachusetts banks are clawing back market share from non-bank lenders and gathering a larger share of the residential mortgage market.

After the 2008 financial crisis, Massachusetts’ banks took a back seat to mortgage companies and other non-depository lenders in the residential mortgage market. Non-bank lenders aggressively expanded, said Partnership for Financial Equity Executive Director Tom Callahan, with big marketing pushes and building strong relationships with real estate agents.

But part of banks’ losses were self-inflicted.

“Some have pulled back from their mortgage lending over the years, feeling like it’s a real high-volume business, and the only way to be profitable is to really do high volumes,” Callahan said. “You have to invest in volume, have a sizable loan or loan-origination staff and underwriting staff, work those connections in the community, and so not every bank saw that as sort of ‘our primary business line’ that they wanted to engage in.”

But now the landscape is shifting.

 Where the Tide Is Turning

According to data from The Warren Group, publisher of Banker & Tradesman, nine of the top 15 residential lenders in the state by volume were banks in 2023 and 2022, an increase from seven in 2021 and six in 2020.

Those increases came as banks and credit unions increased their combined share of the state’s residential loan dollars from 46 percent in 2021 to 49 percent in 2022 and 2023, Warren Group data shows.

Callahan said that the increase in government assistance for first-time homebuyers – particularly during the peak of the COVID-19 pandemic – saw financial institutions get reengaged in the mortgage market. Callahan specifically mentioned the MassDREAMS program which served as a form of downpayment assistance for first-time homebuyers.

“ I think the fact that many customers still look to their bank for mortgage advice, access to mortgage, I think it has an impact on banks saying, ‘okay, yeah, we really should continue to offer this as a business line’ and in some cases, ‘maybe we should ramp up our presence in the mortgage market,’” he said.

Room for Improvement

While banks were able to make strides, mortgage companies still held a strong portion of the mortgage market in the state’s 26 working-class, largely industrial Gateway Cities.

An analysis of 2022 Home Mortgage Disclosure Act data by The Woodstock Institute, commissioned by Callahan’s nonprofit, showed mortgage companies originated 38 percent of all purchase and refinance mortgages combined in the commonwealth and 48 percent in Gateway Cities specifically. In contrast, while Massachusetts banks and credit unions originated a higher percentage of all mortgages in the commonwealth, banks made up only 32 percent of mortgages originated in the Gateway Cities.

Callahan said that different approach to FHA lending could create an opening for banks to gain market share in Gateway Cities like Lynn and Springfield, because they already have a range of low-interst-rate, first-time buyer mortgage products that don’t come with the same fees typically associated with FHA loans.

“From my perspective, banks approach FHA lending appropriately,” Callahan said. “They will start with the MHP program or the MassHousing program and maybe a portfolio [lending] first-time homebuyer program, and then if none of those work for the borrower, go to the FHA product. The non-depositories […] don’t have those other programs. They don’t have portfolios they don’t have access to MHP so they will start and end with FHA.”

Callhan said that in cities such as Lawrence, FHA lending makes up a majority of mortgage lending but that it has changed in recent years. He also credited the efforts by municipal officials in Boston to steer prospective homebuyers towards depository institutions. Other cities, he said, should follow in Boston’s footsteps in terms of educating first-time homebuyers about their financing options.

More Investments Needed

If more programs akin to the Massachusetts Housing Partnership’s ONE+Boston loan program sprout up in other municipalities, that could help, an executive at Massachusetts’ biggest bank mortgage lender said. That program uses state and local dollars to subsidize interest rates and down payments for qualifying, lower- and some moderate-income first-time buyers.

“What we’d love to see is that sort of element be expanded beyond Boston to these other Gateway Cities to become a bigger part of the market,” Leader Bank general counsel and Chief Risk Officer Brook Ames said. “Overall, affordability remains an enormous problem for many borrowers in eastern Massachusetts and the more tools that are available, the better. Banks are just in a better position to take advantage of it because of the ability to hold a loan portfolio.”

If financial intuitions are going to make headway in the Gateway Cities as well as continued growth across the commonwealth, Ames believes investment will play a major role.

“I think some of its investment in a mortgage loan department,” Ames said. “The increase in interest rates really made it difficult for a lot of mortgage lenders. [I] don’t envy what they have to do, because their entire business model was really focused on that mortgage lender and being able to sell the secondary market.”

When the Federal Reserve dramatically raised its benchmark interest rate to beat back inflation, that dried up many mortgage companies’ profitable refinance business and also pushed many buyers and sellers out of the housing market, shrinking lenders’ income.

“Some banks choose not to, and I understand that it can be very expensive – there’s a lot of regulatory requirements,” Ames said. “I think you’re seeing banks starting to get back into that traditional market. I think especially as licensed mortgage lenders, their share decreases, the key is just keeping that momentum. The more diversity in the mortgage marketplace, the better.”

Sam Minton

Minority Borrowers Concentrated

According to the Woodstock Institute report, Black borrowers are moving to more affordable southeastern cities and towns, including Brockton (median value of home purchases in 2022 was $455,000), Taunton ($455,000), Fall River ($405,000), and Attleboro ($445,000). Brockton’s population is 39 percent Black, and 66 percent of traditional purchase mortgages in Brockton went to Black applicants.

Latino purchasers are moving to communities, including Methuen ($515,000), Barnstable ($565,000), and Lawrence ($495,000), where they already have a significant presence. In two communities where the Latino population makes up over 50 percent, Holyoke ($265,000) and Chelsea ($485,00), Latino buyers were more likely to receive a traditional home purchase mortgage than in the commonwealth as a whole, but still less than their share of the population.

“I think one of the more interesting findings is how concentrated some of the Black and Latino lending is in Gateways: the Brocktons, the Lawrences of the world,” Callahan said. “It’s a good-news story, because there’s a lot of good economic activity happening in some of those Gateways around the issue of homeownership with good levels of commercial mortgage lending. Bad news is, are Black and Latino buyers buying in those cities exclusively because they want to, or because they feel like they don’t have opportunities in some other locations outside of Gateway Cities?”