DANIEL J. FORTE
A busy year ahead
Industry watchers and experts are eager to see what 2006 will bring to the banking and lending scene. Often legislative and regulatory issues occupy a predominant spot in speculation about the future, but realizing how greatly real estate affects lending, many mortgage professionals are keeping a close watch on the home market.
“I think the story for 2006 is less of a regulations story and more of a market story,” said James Dougherty, executive director of the Massachusetts Mortgage Association. “Everybody is looking to see what direction the market will take. There are literally thousands of questions out there.”
The big one is whether a housing bubble exists and if it will burst, followed by questions regarding how high interest rates might go and when they can be expected to level off. Dougherty said he would be hesitant to make any strong predictions on those two interrelated topics but noted, “Our anticipation is that rates will not go down.”
Rick Fedele, president and founder of Boston-based Summit Mortgage, was willing to offer some prognostications for the new year, but he warns 2006 may not be as rife with market swings as some people may be anticipating.
“I think we are going to see a year like the past two. This year I am thinking interest rates are going to stay very stable,” he said, adding a prediction that long-term mortgage rates might even decline.
Fedele said he expects 2006 to be a “boring year” in terms of interest rates. Toward the end of 2005 interest rates appeared to be on the rise. Fedele said there may be one or two more bumps at the beginning of 2006, but he expects rates to flatten out after that.
If that and Fedele’s other predictions prove to be true, many in the mortgage industry might be sighing in relief at the end of the coming 12 months. He said the real estate bubble is not going to pop and the housing market will stay strong. New homes are still in demand, and mortgage companies will have plenty to do in 2006, he said.
“I think the consumer is going to see the [housing] bubble didn’t burst,” said Fedele. “It’s just really good stuff on the market right now. People love new construction. I’m saying life is pretty rosy.”
If Fedele sees the future correctly, a lot of people might still be buying homes and taking out mortgages to facilitate their purchases, but refinancing is likely to be another story. At least until people have a better grasp on where interest rates are headed, refinance activity is probably not going to be as prominent a part of the mortgage business, local lenders say.
Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said he thinks mortgage brokers will shift their focus to what has been traditionally seen as the lower end of the home market, such as condominium sales.
“The anticipation has been for a reduction [of activity] in the marketplace,” said Cuff.
He said at the end of 2005 he was starting to see a cooling in the real estate market coupled with the rise in interest rates.
Dougherty said recent refinancing has been spurred by a low-interest-rate environment. When homeowners can get a better rate and the move makes sense, many have opted to refinance, he said. But rate-driven refinancing may be a thing of the past as 2006 begins: The record-low interest rates that were available for a prolonged period have soared in recent months. However, refinancing is still a tool Dougherty sees homeowners using in the coming year, just not for the same reasons as in 2005.
“Kids still go to college. People still utilize [home] equity,” said Dougherty.
‘Going Forward’
Banking industry practitioners also are keeping an eye on state and national legislative issues that are likely to move forward in the new year.
State legislation to license mortgage brokers has been filed. Dougherty said he has been told the state in not properly staffed to handle such a change, although the proposal, in principle, has been welcomed by legislators and regulators.
“The state is not staffed properly to take that on,” he said, although “they agree philosophically.”
Basically, the law would require that mortgage brokers be licensed in the trade, similar to real estate agents. Dougherty said it would hold mortgage brokers more accountable for their business practices. Licensing also would likely come with continuing education requirements, strengthening professionalism on the local lending scene.
If licensing legislation is not enacted in 2006, however, Dougherty insists it is on the horizon and sooner or later will come to pass.
“This is inevitable, whether it passes in this [legislative session] or another one,” he said.
Many state legislative initiatives that industry watchers were expecting to see move forward in 2005 were pushed back due to a reorganization of legislative committees, which saw the former Committee on Banks and Banking merge with the Insurance Committee to form the Joint Committee on Financial Services. Many bills that languished as the new committee worked out kinks may resurface in the new year.
Daniel J. Forte, president and CEO of the Massachusetts Bankers Association, said 2006 will be a busy year when it comes to bills related to banking and lending. Not all will be favorable to the industry.
The MBA plans to oppose some possible changes being considered on Beacon Hill, such as a bank merger bill. The bill proposes requiring merging banks make available 1 percent of their total assets in the Bay State to the Massachusetts Development Finance Agency for a period of 10 years for the purpose of providing loans, financing, bond issuance and commitment guarantees.
However, the MBA is backing a proposed new law related to bank robberies. Forte said at present there is no law specific to bank robberies in the Bay State.
“Because most of the bank robbers are note-passers, which are unarmed robberies, they [perpetrators] fall through the cracks” in terms of stringent sentencing, said Forte.
Bank robberies were down in 2005, with 189 incidents through Oct. 1 compared with 246 through the same period in the previous year.
The new legislation would attach specific punishments to the crime. Note-passers would be facing a minimum of 30 months behind bars, and a robber with a gun or one who threatens that he has a gun would receive a minimum five-year sentence.
Forte said it would send a message to the judges and the robbers.
Also to come in 2006 is legislation that could prohibit third parties from using a bank’s name to solicit customers of a bank. It will stop mortgage lenders and brokers, insurance companies and agents from sending out mail to bank customers that suggests the bank is endorsing their products.
Forte and other members of the Massachusetts Bankers Association say they will continue to fight credit unions that they see as acting as full-service banks. Bankers argue that credit unions should not be tax-exempt if they are going to compete in the same arena as banks. In 2005, Marlborough-based Digital Federal Credit Union bought the naming rights to the Worcester Centrum, a sign, bankers say, that credit unions increasingly are seeking to compete more directly with banks while still enjoying a competitive tax advantage.
However, according to Rob Kimmett, senior vice president of public relations and marketing for the Massachusetts Credit Union League, credit union officials are looking to get rid of some of the old notions associated with their institutions and there is nothing wrong with credit unions focusing on branding and name recognition. In fact, 2006 will likely see the credit union industry ramp up branding efforts. He said several of area credit unions will seek increased visibility in the coming year. Although he was reluctant to name the specific institutions, Kimmett said he knows of more than one local credit union that will be looking to reinvent the way the public views them in hopes of drawing more attention and customers.
Some trends seen in recent years in the banking and lending fields may accelerate in 2006, according to industry watchers. Chief among these is the growing reliance on technology.
“It has been a growing trend,” said Robert E. Bessel, spokesman for COCC, a Connecticut-based technology solutions company that works with area community banks. “Technology is really behind it all, making it all possible.”
One of the big changes is that in 2006 consumers may begin to see automated teller machines that will be able to scan deposited checks and print the images as an instant receipt. He also said remote branch-capturing systems and image exchange, which are allowed under Check 21 legislation and have begun the process of paperless processing of check, are likely to play an increasing role in the coming year. He said the ability to track financial transactions in real time is going to become invaluable to the industry.
“That difference is going to mean more to banks going forward,” he said.
