The number of purchase and refinance mortgages dropped last year, but the good news is the decrease in loan activity was less than many industry practitioners say was expected.
In 2004, 587,505 commercial and residential property mortgages were processed in Massachusetts, including 113,352 purchase loans and 474,153 refinances.
Mortgage activity in 2005 dropped 9 percent to 534,819 loan transactions, according to statistics compiled by The Warren Group, Banker & Tradesman’s parent company, which collects data from registries of deeds throughout the Bay State. Purchase mortgages accounted for 109,521 of that total, while 425,298 were non-purchase loans. The
“The feeling in the industry to a large degree is business is significantly off,” said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association. However, he added, “Those numbers are very reasonable. Frankly, I’m glad. Is business off? It’s off [about] 10 percent. I will take 10 percent any day. A 10 percent drop is not ‘the sky is falling.'”
“Those numbers are not too bad,” concurred Jim Dougherty, executive director of the Massachusetts Mortgage Association. “I think it’s good news that the decline is moderate.”
Cuff said the mortgage industry enjoyed a six-year stretch of extremely high-volume loan activity prior to last year. But in 2005, rising interest rates and high-priced real estate began having an effect on the mortgage business.
“Sooner or later, what goes up must come down,” said Cuff. “The overall cost of real estate in Massachusetts has grown considerably high in the past 10 years.”
But not all mortgage types are on their way down. While single-family home mortgage volume decreased for both purchase loans and refinances, mortgages for condominiums were up in both categories.
Cuff said condominiums are an entry point into the real estate market for many homebuyers who may have been priced out of the home market.
“There is still interest in real estate beginning at the entry level,” said Dougherty. “You have to have that activity at the entry level to keep the market moving.”
According to Dougherty, there are two factors that play into real estate activity and directly affect loan volume. He said buyers need to feel confident about the housing market and interest rates need to maintain a level of appeal.
“Confidence in the real estate market has not been shaken, which is good news given all the talk of the [price] bubble bursting,” he said. “People may complain about the cost of housing, but it’s not stopping them from going out and buying.”
Lenders are always eager to increase market share but with interest rates rising, home sale declining and intense competition for a smaller pool loans, getting a bigger piece of the pie may be getting harder.
Survival of the Strongest
Bank of America was the Bay State’s leading lender for loan volume in 2005. However, its 30,723 transactions still only raked in about 6 percent of total loan business in the state. Other national mega-lenders are not far behind.
“It doesn’t surprise me that there isn’t a commanding [market share] leader,” said Dougherty.
Countrywide Home Loans, at 29,018 mortgages issued, was the state’s second leading lender in 2005, followed by Citizens Mortgage Corp. with 23,128 loans. But there is still room in the top ranks for smaller, local lenders that are maintaining market share despite the overall decline in mortgage activity. Eastern Bank, with 4,635 loans, stayed at No. 19 for the second year in a row, and Salem Five Cents Mortgage Corp. climbed on spot to No. 24 with 3,259 loans.
“Nobody is a stud in Massachusetts as compared to other states,” said Cuff. “There is no real superstar [lender].”
However, some of the smaller players may see competition increase as larger national lenders of all sizes plan to step things up a notch while vying for mortgages in Massachusetts.
The biggest move of the year on the list of top lenders was New York Mortgage Co.’s leap from No. 424 for loan volume in 2004 to No. 42 in 2005.
In 2004, the company went public as a real estate investment trust. It also merged in late 2004 with Guarantee Residential Lending, based in Austin, Texas
Kevin Jenkins, senior vice president and regional manager, said deciding to go public has changed the way the New York Mortgage does business. He called it a smart move for gaining market share.
“We act like a large lender who securitizes their loans on Wall Street,” he said.
According to Jenkins, the $4 billion company has a $2.8 billion loan portfolio. But at the same time the company can present a personal approach than some of the larger national institutions it is trying to compete with, he said. According to Jenkins, the combination is helping to win market share and grow the institution.
“That allows us to take market share away,” he said.
Jenkins said the company does plan to get bigger and become a stronger competitor in the mortgage business is 2006. He said going public also helped to attract new staff in the Bay Sate. The company’s Massachusetts workforce has increased about 30 percent in the past year. He said the strength of the growing workforce is expected to pay off.
“I think we will pick up another large portion of market share this year,” said Jenkins.
JP Morgan Chase Bank, the eighth largest lender in the Bay State with 11,525 loans issued, shares in the philosophy of adding to its employee base. Thomas Kelly, spokesman for JP Morgan Chase, said the company decided to increase its staff in October 2005. He said the plan was to hire 800 mortgage officers nationwide. Kelly said even though the market may be changing, it is not time for companies to slow down or cut back on resources.
“We think the strongest players will survive,” he said. “Massachusetts is an important market to us. It’s a large market, and the Chase name is recognized there.”
Dougherty said more loan business will likely continue to fall into the hands of larger lenders as they acquire smaller companies and push for more market share.
“I think that is the trend you are going to see,” said Dougherty. “Big companies bring a lot of fire power in terms of back-room support.”
