For the first half of 2011, the mortgage market isn’t just slow; it’s at a record-breaking crawl.
According to The Warren Group, publisher of Banker & Tradesman, May was the slowest month for purchase mortgages in 24 years of record-keeping. Only 3,931 purchase mortgages were recorded in Massachusetts for that month, compared to 6,270 for May 2010.
What’s more, year-to-date purchase mortgages also significantly lag, at 15,320 mortgages for January through May this year compared to 22,934 for the same period last year, and easily falling behind the same figures for every year since 1987.
Unless the back half of the year brings a significant turnaround, that would make 2011 the worst year for purchase mortgages in more than two decades. And it would seem that those companies that have placed all their eggs into the residential mortgage basket might be in dire straits.
“Any bank that’s totally reliant on the residential side is going to be feeling the squeeze this year,” said Doug Shaw, senior lending officer and executive vice president at Dedham Institution for Savings.
Getting Creative
As for what’s causing the slump, many mortgage professionals pointed to economic uncertainty, a poor job market and the possibility that the housing market hasn’t hit bottom yet. Regardless of the causes, local lenders tell Banker & Tradesman they aren’t panicking – but they have taken notice. Now is the time, they say, for revving up their efforts and brainstorming new ideas.
“Everybody’s volume is off from last year, no doubt,” said James Sherbo, first vice president of retail lending from Pittsfield-based Berkshire Bank.
But Berkshire, which operates in Massachusetts, New York and Vermont, has actively worked to reach potential borrowers, including first-time homebuyers, by hosting seminars through community development corporations, for example. It also has a vacation-home market and jumbo loan business to draw from, which helps keep business up.
The Warren Group’s information shows refinances are doing better this year than 2010 – 84,328 non-purchase mortgages from January to May 2011, compared to 74,270 in 2010 – but Berkshire and some other banks say their loans have been more evenly divided between purchase and non-purchase loans, even if the overall volume is down.
Still, Sherbo said, the bank has worked hard to keep its purchase-loan pipeline as full as possible.
“We’ve been putting a full-court press on the purchase market for several months.”
Other ideas for reaching new borrowers have come to the fore: Boston-based Eastern Bank, for example, hired two additional loan officers in June specifically to court local Cambodian and Hispanic customers in the Merrimack Valley. The new hires, Lissette Morales and Mealea Chan-Polcari, speak Spanish and Cambodian, respectively. They will assist what Eastern considers to be an underserved market, said John Brodrick, senior vice president of mortgage banking at Eastern Bank.
While most lenders blamed larger economic trends for the downturn, Jay Tuli, vice president of corporate development for Arlington-based Leader Bank, pointed to narrower causes.
During February and March – the months in which those May loans would have been originated – the weather was particularly terrible in Massachusetts, and fewer homebuyers were out house hunting in the rain, snow and cold, he noted.
Compensation Questions
But another big factor came from within the industry itself.
New compensation regulations took effect on April 1, Tuli noted. Those rules significantly changed how mortgage companies operate and how originators are compensated – and were universally derided as being detrimental to the industry. With the whole market trying to adapt, as well as worrying about the changes, finding new prospects was no longer priority No. 1.
“The focus for both banks and mortgage companies – and even loan officers – the focus was not there,” Tuli said.
But now that the industry has settled into its new way of life, things are actually looking better. The pipeline started to get bigger in April and May, and Tuli expects the rest of the summer to show a lot of improvement.
One thing that hasn’t changed lately is the underwriting standards used to approve would-be borrowers, said Leif Thomsen, chairman and CEO of Walpole-based Mortgage Master. At his company and others, underwriting standards have not been loosened to help juice sales.
“God, no,” he said. “Underwriting guidelines are the most difficult ever, period.”
At Mortgage Master, which spans 10 states, Thomsen said his business contradicted local numbers with a fairly robust purchase business.
“I’m a little bit surprised how well the purchase market holds up in the Northeast,” he acknowledged.
His company works heavily on referral, he said, and has originators on the road constantly, meeting with Realtors, attorneys, financial planners, previous customers – whoever can refer business, he said. That network has managed to keep the company’s business flowing briskly, despite what appears to be a drastic industry-wide downturn.
The mortgage department at the Dedham Institution for Savings, meanwhile, is busily working with its marketing department on new campaigns, said Doug Shaw, senior lending officer and executive vice president.
Originators are trying to be more aggressive, and they say they’ve recently done more prequalification for potential customers, Shaw added, so it’s possible the summer will bring good news. Still, with would-be homebuyers still spooked by economic uncertainties, it’s possible that mortgage departments will have to just wait out some bad times.
“Bottom line, if there’s just not a lot of purchase activity, and we’re [covering] as much refinance activity as there is out there, it might be slow for awhile,” he said.
