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TheStreet Open House

Bank of America Mortgage Retreat Benefits These 6 Banks

NEW YORK ( TheStreet) -- Bank of America (BAC - Get Report)has been backing out of the mortgage market, and several banks are well positioned to pick up the slack, according to a report published Wednesday by FBR Capital Markets.

Bank of America originated just 5.6% of new mortgages in the fourth quarter, good for fourth place among U.S. lenders, but down precipitously from the roughly 20% market share it grabbed from 2007-2010 (see chart).

The bank has exited the wholesale mortgage origination business and it hopes to be out of the correspondent mortgage business by year-end so it can focus solely on retail originations.

"The bigger guys with large legacy servicing books just want out of the business," says FBR analyst Paul Miller, author of Wednesday's report. "The reputational risk is killing them. If you're Bank of America CEO Brian Moynihan, you're just getting a tremendous amount of pressure to fix the mortgage problem, modify people down--that all costs money. You sink more and more money into servicing and then you get sued by the state attorneys general for foreclosing on a house the incorrect way."

Bank of America spokespeople had no immediate response.

Miller says many small lenders began looking to Citigroup (C - Get Report)'s correspondent channel to pick up the slack, but that hasn't been an easy solution.

"Citi now has tightened up their underwriting standards pretty heavily, which kind of blindsided a lot of people," Miller says.

Citigroup spokesman Mark Rodgers wrote via email the bank "remains committed to the correspondent channel."

The trend is disturbing, of course, for those looking for a housing market rebound even though smaller lenders benefit, Miller says.

"There's not enough capacity to do the kind of loans that people want to get done, but what that does do though it makes the smaller players' profitability metrics a lot higher because there's no room to expand capacity."

Miller says the banks gaining market share in mortgage banking typically don't promote it heavily, because investors aren't too excited about the business. Nonetheless, he expects that once investors see the profit gains they will inevitability bid up the shares.

Here, then, are some of the likely beneficiaries of Bank of America's pullback:

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