Bank of America Continues to Bleed Customers (Update 1)

Updated with comments from the Mortgage Bankers Association.

NEW YORK ( TheStreet) -- With the largest U.S. mortgage lenders continuing to pull back, several smaller players have can "double or even triple their market share" over the next couple of years, according to FBR Capital Markets analyst Paul Miller.

According to Miller, Bank of America ( BAC) "has created the land of opportunity" for smaller mortgage lenders, since its "dominance in the mortgage market has eroded ever since" its disastrous purchase of Countrywide In 2008.

With the company still reeling from its mortgage putback mess and regulator order to improve its mortgage loan servicing and foreclosure practices, BAC's share of new mortgage originations in the United States "has declined from ~25% to ~10% as of 3Q11," according to Inside Mortgage Finance data and FBR's own research.

Other large national mortgage lenders have seen smaller declines, with JPMorgan's ( JPM) market share declining to 12% in the third quarter from 14.8% in 2008 and Citigroup ( C) seeing its share decline to 5.4% from 7.8% in 2008.

Meanwhile Wells Fargo ( WFC) saw its mortgage origination market share grow to 27.7% in the third quarter, from 19.4% in 2008.

The Mortgage Bankers Association predicts that total mortgage loan originations in the U.S. will shrink 28% to $935 billion in 2012 because of increasing interest rates and what Miller terms "refi burnout," followed by an increase of 27% in 2013. Miller thinks that with President Obama's expansion of the Home Affordable Refinance Program , or HARP, for loans held by Fannie Mae ( FNMA) and Freddie Mac ( FMCCO), 2012 mortgage loan volume "could be closer to $1.2 trillion."

Smaller mortgage lenders with national origination platforms that Miller expects to continue taking market share include U.S. Bancorp ( USB), PHH Corp. ( PHH), Quicken Loans, Provident Funding, BB&T ( BBT), and Fifth Third Bancorp ( FITB).

U.S. Bancorp had a 3.8% mortgage origination market share in the third quarter, increasing from 2.5% in 2008. Miller has an "Outperform" or "Buy" rating on the company's shares, with a $32 price target.

PHH Corp. had a 3.5% mortgage market share in the third quarter, increasing from 2.3% in 2008. Miller rates the shares "Outperform," with a $24 price target.

BB&T had a 1.7% mortgage market share in the third quarter, increasing from 1.3% in 2008. FBR analyst Scott Valentin has a neutral rating of "Market Perform" on BBT, with a $22 price target.

Fifth Third Bancorp had a 1.4% mortgage market share in the third quarter, increasing from 0.8% in 2008. Miller rates the shares "Outperform," with a $32 price target.

Mortgage Bankers Association chief economist Jay Brinkmann said in October that mortgage rates were "at or near their low points," but said that his organization had "been wrong on this call before."

Brinkmann added that "regardless of which path the economy and mortgage rates take, we are predicting another tough year, with origination volumes at their lowest point since 1997."

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.