At WesCorp's Annual Credit Outlook Conference in September, Randy Fuchs presented Boxwood's latest research on the small-balance market to WesCorp's credit union member organizations. With only 2% of the total originations market, credit unions are a relatively untapped source of funding for small-balance borrowers. Yet, given the scarcity of lending alternatives today the role of credit unions in this marketplace is likely to grow over time.
Randy presented the latest statistics on the trajectory of the market that include:The increased dominance of refinance loans - Purchase loans are down 60% year over year, but refinances have declined only 11%. Three out of four originations are now refinances. The playing field is growing more flat - The top 10 lenders account for only 17% of total originations, down a percentage point from last year. Some major lenders have left the playing field and some other regional and national banks have stepped up originations and grown more prominent. Delinquencies remain in check - Despite the noise about residential mortgages and negative perceptions generally about commercial mortgage loan performance, the reality is that small-balance loan quality today is sound. That said, Boxwood's analysis of the smallest cohort of loans under $1 million are showing recent indications of potential stress. Small-cap properties are highly vulnerable to trends in the residential housing market - Boxwood's new research reveals a strong correlation between small-cap property prices and housing prices. By contrast, there is a weaker relationship between the large cap commercial property world and the residential housing market. The implications for collateral and market risk assessment in the small-balance space are significant.