Small Banks See Opportunity in Mortgages

Many banks have scaled back or discontinued wholesale lending, as the once-critical securitization markets have dried up and Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote) became nearly the only outlets to which banks can sell loans. This further reduces the avenues for borrowers and mortgage brokers to access loans.

"Now there is a deluge of mortgages and there is nobody to close them," Goldman says. "The number of banks [in the wholesale mortgage business] is probably down 60% to 70%."

Carolina Bank expanded its wholesale mortgage business in the past two years, despite the housing meltdown.

"It has been one of the best things I have ever done," Braswell says. "We've got folks who are working nights and weekends to keep up with the volume."

Still, Braswell says another reason why the company is gaining share is because it is able to sell most loans -- as long as they are not jumbo in size -- to Fannie Mae, Freddie Mac and other government agencies.

Steve Jacobson, founder and president of Fairway Independent Mortgage in Sun Prairie, Wisc. says mortgage brokers like his company must "be faster [and] quicker" than banks to compete.

"We're all battling the same issues," he says. "Do you have enough people to handle the calls coming in? Do have enough capacity on the warehouse lines? ... [E]verybody is kind of juggling depending on their own company."

Like other firms, the majority of Fairway's business is refinancing right now, but the firm is giving priority to mortgages for purchasing homes and looking to close loans within 60 days as opposed to less than 30 days a year earlier. Jacobson says his firm is in position to do $3 billion worth of mortgages this year compared to $1.97 billion in 2008.