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Bank concentration spells bad news for consumers

By Holden Lewis · Bankrate.com
Tuesday, May 4, 2010
Posted: 2 pm ET

Three companies underwrite 3 in 5 mortgages. Such bank concentration won't benefit consumers in the long run.

According to Mortgagestats.com, three banking institutions accounted for 58.5 percent of mortgage volume in the final quarter of 2009. The three are Wells Fargo, Bank of America and JPMorgan Chase.

Whenever a cartel forms, you have an example of a market failure that eventually harms consumers. In my lifetime, I've seen companies form (or try to form) cartels in oil, silver and lysine, to name a few. None of those ended well. Will we fight a mortgage cartel next?

Government makes this situation worse. Clearly, Fannie Mae and Freddie Mac want to work with as few bank lenders as possible, making work simpler for Fannie's and Freddie's federal overseer. The Federal Housing Administration has cut out small brokers.

What do you think? Do you disagree -- do you believe that large lenders will pass on their efficiencies to customers in the form of lower rates and fees? Or do you share my concern? Comments, please.

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3 Comments
Gina
May 07, 2010 at 10:25 am

And what were the incidences of foreclosure at these three banks? Less than the national average, I would be willing to bet. People go to these companies because they already have relationships with them and they trust them. They give decent rates with honest lending policies.

To claim that the business of mortgages must be divvied up amongst less qualified players is asinine. Offer a decent product at a decent price and stand by it; that is the only way to succeed in business over the long term.

I do agree that the government needs to butt out of the mortgage industry. It is a dangerous proposition for so many Americans to be reliant on the government to help them afford their housing. When you lean on the government to put a roof over your head, you put your destiny in their hands. Dangerous.

Paul
May 06, 2010 at 9:00 am

I agree! As long as the GOV protects the "2BIG2FAIL" biggies we'll stay on this trend. Sad.

Mark
May 04, 2010 at 5:07 pm

Holden, you couldn't be more right when you said "Government makes this situation worse. Clearly, Fannie Mae and Freddie Mac want to work with as few bank lenders as possible, making work simpler for Fannie's and Freddie's federal overseer."

The government should have gotten out of the mortgage business long ago. When the referee gets in the game things get rigged.

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