JIM DOUGHERTY
Membership up
About 20 percent of Massachusetts mortgage lending companies didn’t meet an April 15 deadline to renew their licenses with the state Division of Banks, but even with mortgage rates that have risen every week for the past month, that doesn’t necessarily mean the companies are leaving the business.
As of late last week, a week after the deadline, 79 percent of existing mortgage companies, or 855 out of an eligible 1,083, had applied to the division for license renewals, said David Cotney, senior deputy commissioner of the Division of Banks. That number isn’t final; many companies file their applications late, Cotney said.
“So far, I think it’s consistent [with what we’ve seen in other years],” he said.
One percent of existing mortgage companies have definitively told the division they no longer want a license. Five are not renewing, which means that they will not be able to originate mortgages after their licenses expire on May 31, and eight have surrendered their licenses, which means they will immediately stop originating mortgages.
Last year, 953 companies were eligible to renew their licenses, of which 925 renewed. Four companies surrendered their licenses and 24 did not renew, according to Cotney.
Some of those non-renewals are likely due to mergers in the industry, said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association. As an example, he mentioned the Philadelphia-based mortgage company Gateway Funding, which recently purchased three other companies that do business in Massachusetts.
The number of mortgage companies operating in the state has grown over the past year. In 2003, 925 companies renewed their licenses. That means 158 companies applied for new licenses over the past year. So, although fewer companies than last year have applied to renew their licenses so far, the final numbers aren’t in and it may not mean companies are leaving the business.
“I don’t know that we’re seeing a mass exodus at this point,” said Jim Sherbo, senior vice president at Banknorth, the Portland, Maine-based bank that did about $2 billion worth of business in mortgage lending in Massachusetts last year, most of which was in the refinancing area.
The refinance boom is what has brought most new companies into the market, said Jay Brinkman, financial economist for the Mortgage Bankers Association in Washington, D.C. Companies find it easy to survive in a refinance-heavy market, he said.
“It’s easier to attract business during a refinance wave,” Brinkman said.
Although most local analysts don’t expect the industry to shrink quite yet, Brinkman has been expecting it.
“In general we have been expecting a contraction in the industry due to the decline in [refinance] volumes we know will happen in 2004,” he said.
‘No Pattern’
As the refinance boom fizzles out, which could happen over the rest of this year if interest rates continue to slowly tick upward as many industry watchers expect, companies that got into the market to capitalize on the refinance boom will find it difficult to survive, Brinkman said. It takes a “different set of skills” to succeed in a market dominated by home purchase mortgages rather than refinance mortgages, he said.
Despite what many consider to be an inevitable drop-off in refinance activity, Sherbo said he hasn’t noticed many companies leaving the playing field yet. He said he even expects some new companies will join the industry before the refinance boom is over.
“People wait and think, ‘Maybe we should get in,'” he said.
In most refinance booms in the past, many companies have jumped into the business at the tail end of the boom, Sherbo said. Some companies wait to see what will happen and, when they decide to get in, licensing and setting up shop can take awhile, he said.
Although he doesn’t see companies leaving the field yet, Sherbo predicted that some will when the mortgage arena returns to a predominantly purchase-mortgage market, Sherbo said. Then, the companies that got in late will start to get out.
“I haven’t seen that yet,” he said.
Jim Dougherty, president of the Massachusetts Mortgage Association, agreed.
“Our memberships are running ahead of last year,” he said. “It suggests to me our industry is not diminishing in size.”
Dougherty said membership in the association for the first four months of this year is equal the total membership number of from last year. He expects that, by the end of 2004, membership in the association will be up by as much as 20 percent.
The new companies are coming from many different places, Dougherty said.
“There’s no pattern to it. They’re all over the place,” he said.
Many existing companies are coming into Massachusetts because of the national success of the industry, he said. Some regional companies are going national.
But that won’t last forever. Dougherty likens the refinance boom’s eventual fizzle to the real estate market in the 1980s. When the market slowed down and prices dropped, many real estate companies weren’t making enough money, but it still took time for the number of companies to diminish.
“If refi’s [refinance mortgages] evaporate, you’re not likely to see that consequence in people or shops that quickly,” Dougherty said.
The mortgage market depends on what Alan Greenspan and the Federal Reserve Board decide to do with interest rates, Dougherty said. The presidential election also will play an important role in what will happen in the market.
“Everything hinges on the election and on the economic dynamics of an election year,” Dougherty said.
But, if the Fed doesn’t raise interest rates until this winter, the mortgage industry will continue with the kind of success it has seen over the past couple of years, Dougherty said, with refinance activity driving record mortgage volume.
“You can expect the industry will be business as usual,” he said. “I don’t see anything on the horizon, barring the unpredictable [until the election in November].”
Mortgage companies that haven’t applied to renew their licenses yet may not receive their new licenses in time for the May 31 expiration of their old ones, but employees at the Division of Banks are trying to get the applications processed as quickly as possible, Cotney said.
“We’ll do everything we can,” he said.
