While 203,000 jobs added to the U.S. economy in November is welcome news, it will push interest rates higher—specifically, residential mortgage rates. Those rising rates, along with tighter underwriting and fast-rising home prices, are pushing borrowers away from larger lenders.
"If you're buying a house, our advice is to find a local lender that's reputable," said Eric Egenhoefer, president of Waterstone Mortgage, a subsidiary of Milwaukee-based WaterStone Bank, an independent with reported assets of more than $1.6 billion. "An independent company in general is more nimble, can get to a closing faster and provides better service."
An increasing number of borrowers are doing precisely that.
Smaller bank and nonbank lenders' share of the mortgage market rose to 60 percent in the third quarter, versus 39 percent in 2009, according to Inside Mortgage Finance. Those outside of the top 25 largest lenders rose to 35 percent of the market from 13 percent in 2009.
What's more, the big banks are pulling out in a big way—just five of the top 20 single-family mortgage originators in 2006 remain active in the market, according to a recent Fannie Mae report.
"If Wells Fargo wanted to gain market share, they would," said Brian Simon, chief operating officer at New Penn Financial, a nonbank lender owned by specialty finance firm Shellpoint Partners.
Wells Fargo, the largest lender in the U.S. with a 22 percent market share, has changed its website to make the experience for consumers more like one they would have with a smaller bank.
"The lending space for Wells Fargo mortgage feels much more like a local community bank than a giant bank with a call center," said Franklin Codel, head of Wells' mortgage production, in a September interview. "Most consumers are looking for a personal relationship with someone who can help them through the process and not just looking for the lowest rate if it doesn't come with a reasonable amount of service."
But with refinance volume down more than 60 percent from a year ago, the company has laid off hundreds of workers, as have other large lenders. In addition, historically low rates and higher fees charged by Fannie Mae and Freddie Mac are squeezing lending margins, so big banks are focusing on more lucrative businesses.
"Even though the big guys came back, they never came back the way they were in the Countrywide days," said Guy Cecala, CEO and publisher of Inside Mortgage Finance. "They never got aggressive on the prices, so it was very easy for Acme community bank to compete."
(Read more: Mortgage rates on the rise again)
Small lenders are not only competing but becoming more aggressive.
"There are a lot of opportunities in play," said Simon at New Penn, speaking this week from the Mortgage Bankers Association's Independent Mortgage Bankers Conference in Miami. He said he has been talking to smaller colleagues with the aim of making acquisitions.
"There is a lot of angst in general," he said. "When there's angst, there's opportunity for guys like me to make a pitch for why New Penn is a great place for people or groups to work."
But smaller and community lenders are not necessarily going to offer the absolutely lowest rates, especially for savvy online rate seekers—most of whom are looking to refinance a home, which generally requires less hand-holding than a purchase.
(Read more: Why mortgage rates are taking a holiday)
Brian Del Terzo shopped online when he was buying his first home outside Minneapolis but ended up on a call list getting dozens of offers and rates. Instead, he went with a local lender, Waterstone.
"It seemed easier because I can get in touch with the loan officer more easily," he said. "There is not as much red tape, especially if something unusual pops up."
Though Del Terzo acknowledged that he may not be getting the lowest rate possible, he said he would happily trade that for better service.
"At the end of the day if I'm getting the home for the price I want, and the mortgage process is smooth, and I'm getting a rate that's fair, I'm completely satisfied," he said.
Small-to-midsize local banks—many of them publicly traded companies—were hit hard during the credit crash, with hundreds going out of business. But recent increases in their mortgage business are helping to boost balance sheets. Nonbank lenders, which often compete online, are also seeing big gains, and more of them are going public to raise more cash.
While new mortgage regulations going into effect next year may throw another wrench into the already tight lending landscape, smaller lenders seem poised to profit. Fewer loan products may be available today than during the housing boom, but borrowers have a growing number of options for getting a loan—and new competition among more lenders can't hurt.
—By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.