Time flies when you’re having fun – and so the past 12 months must have been a blur for most in the mortgage industry, with the recovery of the purchase market and record-low interest rates driving a boom in applications not seen since the mid-2000s.
But last week’s announcement of the imminent dissolution of 1-800-East-West Mortgage – whose catchy jingle imprinted itself into a generation of New Englander’s brains – is just the latest sign that the refi era has come to a halt, jolting an industry which was still in recovery from the housing crash.
Analysts had predicted that rates would rise in the second half of this year, but the sustained price jump which began in May has been sharper than many anticipated. According to the Mortgage Bankers Association (MBA), refinance applications have dropped more than 60 percent from their peak a mere three months ago.
“We have taken a large number of borrowers out of the market at this point,” said Michael Fratantoni, an economist and vice president of the MBA. “The rate increase has been steeper than we had forecast, but the decline in refi volume has been in line with what we’ve forecast. For someone who had refid at 3.5 [percent], whether you’re at 4.5 or 4.75, it doesn’t matter; you’re not going to refi. They don’t have an incentive.”
The decline in refis means that purchase mortgages will make up the majority of application volume for the foreseeable future, something that hasn’t happened since the home-buying boom of the mid-2000s.
Already, his firm is seeing a mix of about 70:30 ratio of purchase to refis coming in the door, said Craig Tashjian, vice president of Fairway Independent Mortgage Corp. in Needham.
Some Refi Activity
“I think going forward, it’s going to be 70 to 80 percent purchase. Refinances will still continue – there will be people looking to change the term, or now that they see they have a little more equity in it they may be looking to free up some cash to make improvements. There’s always some refi activity. But the volume is much, much slower than it was in the recent past,” said Tashjian.
A company like Fairway, with a strong referral network that helps drive purchase volume, will be in position to weather the storm. But companies like East-West, which relied on mass-market ad campaigns to drive Internet and phone applications, may find themselves struggling.
“The people that were doing purchase business on a regular basis are coping quite well. The refinance shops without significant purchase business are scrambling. They’re concerned as to where the next loan’s coming from,” said Jerami Marshal, president of the Massachusetts Mortgage Bankers Association.
That means there may be more closures and acquisitions on the horizon, including some of the largest players in the industry. Wells Fargo announced more than 2,000 layoffs in its mortgage unit in response to the refi decline.
“I’m getting a lot of calls from people looking for jobs,” said Marshal. “Six months ago I couldn’t find a [loan] processor for one of our members. We’re seeing a lot of our members entertaining mergers and acquisitions…they’re looking for purchase shops that want to be bigger purchase shops. That’s where the focus is.”
A further wave of consolidations, however, could imperil the industry’s efforts to recruit new talent, a persistent worry after the housing crash thinned the ranks of younger executives.
“We’re trying to recruit each other’s people. There is definitely recruiting continuing to go on in order to make up the lack of volume that way,” said Tashjian. “The problem is that in the industry today, there’s no real sort of mentoring program – it’s costly to bring someone else on that’s not directly generating business. It’s a catch-22, because you do need some young blood to get out there and learn the business.”
Email: csullivan@thewarrengroup.com
