Big banks are fleeing the mortgage market

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They now face a regulatory environment so strict that many are afraid to lend, even to customers with the most pristine credit. They're still paying up for misdeeds done during the bubble. There's essentially no private bond market to whom to sell mortgages.

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"We can't make money in the business," BankUnited CEO John Kanas said when he announced a mortgage retreat on a January earnings call. "We realized that this was the lowest-margin, most volatile business we had and we decided that we should exit."

Of the top 10 originators in 2015, banks lent 28.6% of all mortgages, according to data from Inside Mortgage Finance. That's about half their share in 2012, when banks among the top 10 originators accounted for 54.4% of all mortgages.

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Community banks and credit unions are going to step into the void, Tozer told MarketWatch, although they won't be big players because post-crisis regulations limit how much mortgage debt they can hold. "Right now they should be flourishing, but they won't be able to live up to their full potential" because of Basel requirements, Tozer said.

The biggest players will instead be online lenders, sometimes called "nonbanks." In 2015, four of the top ten originators were such entities, according to data from Inside Mortgage Finance -- Quicken Loans, PennyMac Financial, PHH Mortgage, and Freedom Mortgage. Those institutions, also known as "independent mortgage bankers," made up 43% of all originations in 2014, according to the Mortgage Bankers Association, a share that's stayed steady or grown every year since 2007, when it stood at 23%.