The ranks of Massachusetts mortgage brokers and lenders have dwindled along with the rise in interest rates. Applications for renewals fell at the Massachusetts Division of Banks, with 21 percent fewer lenders and 15 percent fewer brokers opting to extend their licenses.
From 1996 to 1999 the number of mortgage brokers and lenders licensed in Massachusetts steadily increased, from 258 brokers at the end of 1996 to 392 at the end of 1999. A total of 211 mortgage lenders held licenses in the state at the end of 1996. By December 1999 the number rose to 306.
This year a total of 333 mortgage brokers and 241 mortgage lenders renewed their licenses by the April 15 deadline. Fourteen brokers and 12 lenders notified the division they would surrender their licenses, which expire May 31.
Every time you have a down cycle this happens, said Maureen R. Elliot, chairwoman of the Massachusetts Mortgage Bankers Association. People get out of the business.
The status of another 45 brokers and 53 lenders remains unclear, as the licensees did not apply for renewal or notify the DOB of their plans. It will be several weeks before the status of these licensees is known, according to Senior Deputy Commissioner Steven L. Antonakes. If the licensees do not indicate their plans by May 31, the DOB will give them 10 days to submit their paperwork.
If they don’t we’ll consider that they don’t seek to renew their license, Antonakes said. If we don’t get anything we’ll send a second letter saying they are not authorized to conduct business in the commonwealth.
I have a feeling that several of them are just sort of fading out, said Howard Miselman, chairman of the Massachusetts Mortgage Association. It’s a function of the marketplace.
Cyclical Business
The state statistics mirror national mortgage employment figures, which show that mortgage jobs have been declining since last June, when they reached a high of 375,000. In March of this year 338,000 people were employed by mortgage companies and brokerages, compared to 368,000 in March 1999, according to the Mortgage Bankers Association of America.
It’s a very cyclical industry, and it moves with interest rates, said MBAA economist Brian Carey. When rates rise business slows, workers are cut and employment declines.
Low interest rates fueled a refinancing boom in 1998, as home owners rushed to lock in lower rates. Many mortgage lenders had to work overtime or hire additional staff to handle the volume.
That basically doubled volume in 1998, and that business has dried up, Carey said.
Bay State lenders closed $35.3 billion in mortgages in 1998, but the volume dropped 20 percent to $22.5 billion in 1999, according to Warren Information Services, a sister company of Banker & Tradesman. Lenders completed 273,452 refinances in 1998, but the figure fell to 196,970 last year. The statistics include mortgages from $25,000 to $1 million.
Mortgage professionals knew a slowdown would come eventually. Those who remembered the strong growth period in 1992 and 1993 also recalled the job cuts that followed in 1994 and 1995. Miselman, president of Continental Funding Corp. in Stoughton, has been in the business for 13 years.
I’ve seen a lot of companies come in and go out, Miselman said. Then there are the companies that are in it for the long haul. They’re into relationships with their customers. They want to do not only this loan, but the next house they buy and a second house down on the Cape and their kids’ loans when they buy.
MMBA Chairwoman Elliot is senior vice president at Ivy Mortgage Corp. in Woburn. Employment at her company has remained steady, she said, because Ivy did not focus on refinances, but other companies have been harder hit by rising rates.
We’ve seen in the industry a lot of layoffs, and now we’re starting to hear that companies are closing, Elliot said. There are some people that get into the business that don’t understand it and don’t realize how complex it is. Plus a lot of the companies are heavily dependent on refinance business, and as soon as that goes away they have a difficult time.
Although the mortgage lending business remains strong, many qualified home buyers have difficulty finding a home because of lack of inventory and skyrocketing prices, she said.
Most lenders are seeing pipelines with easily 50 percent approvals, but people that cannot find homes, Elliot said.
The escalating interest rates could price some borrowers out of the market, Miselman said.
At some point they can’t afford the monthly payment, Miselman said. It affects all of those people that were pushing it before, and with the rise in interest rates are not comfortable with the mortgage payment.
Hiring Crunch Eases
During the refinancing boom some mortgage companies had a hard time hiring enough staff to handle the volume. Attendance at introductory courses in mortgage processing offered by state associations surged. Because mortgage processors and underwriters were hard to come by, many companies hired temporary help. Others paid overtime to workers that stayed late to get applications processed.
These days it’s easier to hire a processor or underwriter than it was a year ago, Miselman said.
There have been people who have been let go, and there are less people actually hiring, Miselman said. More people are looking for fewer jobs.
That won’t change anytime soon, economists predict. The MBAA’s Carey said the numbers will probably continue to fall this year as the Federal Reserve raises interest rates even further. He expects the Federal Reserve to raise interest rates two more times this year, bringing the rate on a 30-year-fixed mortgage from 8.3 percent to 8.9 percent.
We expect the industry will see some further shrinkage in employment, Carey said.
Industry veterans like Elliot expect the interest rate rise to bring the mortgage business back to a more normal pace.
With the rates going up and the prices, hopefully the end result will be a return to a more normal market, Elliot said.
Last week one-year adjustable rate mortgages reached their highest level in almost 9 years, according to Freddie Mac’s primary mortgage market survey released Friday. One-year Treasury-indexed ARMs rose to an average of 6.9 percent with one point, up from 5.68 percent a year ago. The interest rate is the highest for the product since September 1991.
A financial sector nervous about the Federal Reserve’s likely actions pushed mortgage rates higher this week, and nowhere did that nervousness have a bigger impact than in the cost of the one-year ARM product, said Robert Van Order, chief economist for Freddie Mac. Fear of inflation finally making inroads into the economy coupled with the near certainty of another hike in short-term interest rates – and the possibility it may be a hefty hike – has driven the one-year ARM to its highest level in almost nine years.
Fifteen year fixed rate mortgages averaged an interest rate of 7.94 percent with one point, compared to 6.61 percent a year ago. The average interest rate charged on a 30-year fixed rate mortgage was 8.28 percent with an average of one point, compared to 7.02 percent a year ago.
Mortgage loan applications dropped slightly the last week in April, the MBAA reported last week. Loan applications fell 0.8 percent from the week before, and 23.6 percent from the same week in 1999. Refinancing activity made up 14.6 percent of the applications, while adjustable rate mortgages made up 23.3 percent of the applications.
