Refinance dollars made up much of the mortgage business’ muscle in 2009. It was also more than enough to make up for still-deflated home purchase business for Massachusetts lenders, many of which owe a more-prosperous 2009 solely to refinances.
But with the refi boom seemingly over and the year-end flow waning to a trickle, lenders are wondering how to make up the difference in 2010.
They probably won’t, said Michael Fratantoni, vice president of single-family research with the Mortgage Bankers Association. The U.S. mortgage industry was $2 trillion in 2009, 63 percent of which was in refinances. The organization predicts that 2010 numbers will fall back to 2008 levels of $1.5 trillion, thanks almost entirely to a drying-up of refinances.
The best bets for making up the difference lie in encouraging purchases, Fratantoni said, although that outlook is not necessarily encouraging. At least one local lender said she sees a return to adjustable rate products as a means of filling some of the void.
ARMs Race
Federal government programs such as the First-Time Homebuyer tax credit will likely prop up the purchase market for the first part of the year, said Marilyn Sperling, senior vice president of Pittsfield-based Greylock Federal Credit Union. After it expires at the end of April, purchases will rely on larger factors.
“It’s all about employment. We’ve got to get people back to work,” she said, although it’s anyone’s guess as to where unemployment numbers will trend. Sperling also anticipates that just as the original deadline for the homebuyer tax program brought a surge in purchases this fall, the new deadline will bring a fresh rush of last-minute buyers in April.
As for refinances, she said, most people who wanted to refinance have already jumped at the chance, at least for the time being.
Sperling told Banker & Tradesman she does see some hope from a once-maligned segment of the mortgage business: adjustable-rate mortgages. The low interest rates of the last year sparked a ton of fixed-rate business, which most institutions sell, therefore cutting themselves off from earning continued interest.
But Sperling expects higher rates to bring a resurgence of adjustable-rate mortgages – which, despite bad press from borrowers who got into fast-adjusting, upward-climbing ARMs before the mortgage crisis, can be helpful and cost-effective for some borrowers. Those mortgages will stay on the institutions’ books, and the institution will continue to draw interest income from them. Greylock is expecting a drop in mortgage volume, but also predicts a shift to more adjustable-rate dollars.
“It’s a steady stream of income for us,” she said.
Refi Down, Not Out
Other lenders, however, still see some hope in refi business. Lori Grover, vice president of lending for Greenfield Savings Bank, noted people will always need to refinance – to get money for home improvement projects or pay for a child’s college education, for example. That should keep the refi business flowing, even if it isn’t a flood.
But regardless, that flood was a great help to many lenders. Compared to 2008, Greenfield Savings Bank’s refinance dollar volume went up a whopping 98 percent in 2009. According to data from The Warren Group, publisher of Banker & Tradesman, Greenfield did $97 million in refinance business in 2009, compared to $49 million for 2008. That makes the bank’s 27 percent dip in purchase dollar volume look paltry in comparison. Overall, the bank’s mortgage business was up 50 percent for 2009 compared to 2008.
That trend repeats for many of the state’s top mortgage lenders, who saw growth in 2009 thanks solely to refinance dollars.
Much of that came in the spring, when low rates kept lenders scrambling to meet the refi demand. The national rate for a 30-year fixed mortgage hit an all-time low of 4.6 percent in March 2009, Fratantoni said. Even though current in the five percent range are still low historically, they’re likely to rise in 2010.
Picking Up Purchases
As the boom comes to an end, however, some consultants see many more small- to mid-sized institutions moving in to ramp up purchase business.
John Spillane, president of Braintree-based Spillane Consulting Assoc., said he’s seen many small mortgage lenders take aim at increasing purchase dollars, hoping to scoop up business left behind by major lenders.
Some of those major lenders saw an across-the-board slump in 2009. Financially troubled Citigroup’s Citicorp Mortgage Inc. saw an overall drop of approximately 55 percent in total mortgage business by dollar volume from 2008 compared to 2009, from roughly $274 million in Massachusetts business to $125 million, according to The Warren Group.
Spillane, who does mortgage consulting throughout New England, said many small and mid-sized banks with either few or no mortgage lenders have been hiring out-of-work lenders and other personnel from struggling major lenders, as well as calling on brokers, developers and builders to ramp up residential business.
