BRIAN KOSS
Refis ‘dried up’
Lenders are dusting off their marketing tools and prepping for the end of the refinancing boom, just as purchase loans pick up speed and the Federal Reserve raises rates.
On June 30, the Federal Reserve increased the federal funds rate from 1 percent to 1.25 percent. While the increase affects short-term loan rates for banks and does not directly impact mortgage rates, some upward pressure on mortgage rates is expected, especially if, as is anticipated, the Fed continues to increase rates in the months ahead.
According to a June 15 issue of Originator Times, a weekly online news source for mortgage originators, over 60 percent of all loans originated this year will be purchase money loans.
Brian Koss, regional vice president of Countrywide Home Loans, said the demand for refinancing has slowed down considerably.
“Refinances have virtually dried up,” said Koss.
Between January and May of this year, there were 190,346 refinanced home mortgages worth $33.2 billion in Massachusetts. During the same period in 2003, there were 291,949 refinanced mortgages worth $51 billion in the Bay State, according to statistics compiled by The Warren Group, parent company of Banker & Tradesman.
In 2002 between January and May, 168,554 refinanced mortgages worth $25.5 billion were issued.
The Mortgage Bankers Association predicted in May that rising interest rates would cut into refinancings, but home purchases would remain strong. The MBA also said the fall in refinance originations will be faster than expected because of a more rapid increase in interest rates than previously forecasted.
Linda Bates, senior executive vice president at Sherwood Mortgage Group in Boston, said up until three years ago, purchase loans were 70 percent of the business at Sherwood Mortgage, where the primary focus is on purchase loans. In the past three years, that 70 percent of business flipped to refinances.
Sushil Tuli, chief executive officer of Leader Mortgage in Arlington, said refinances have been slowing down and he expects to see purchase loans become 80 percent to 85 percent of his company’s business.
Dean Caso, president of Homevest Mortgage in Needham, cited similar numbers. Last year, he said, about 80 percent of Homevest’s business was refinances. This year – excluding March, when there was a drop in rates – purchase loans have become the main source of business.
Seven-year mortgage industry veteran Fred Ginches, regional manager at New Boston Mortgage in Wakefield, has seen similar action in his office where purchase loans have been holding steady and refinancing has slowed down.
Like Homevest, Ginches said when the rates dropped in March, New Boston Mortgage experienced a mini-boom.
A New Approach
With the market changing, mortgage companies have had to change their approach.
Bates said she recently asked her managing partners to provide new business plans, noting that she is interested in seeing the strategies that will be used to acquire more purchase loan business.
Bates said going back to the Realtor base, working on weekends and attending open houses on Sunday are a few things lenders will have to do to strengthen relationships with referral services.
“These aren’t new [strategies]; we just didn’t have to use them [during the refinancing boom],” said Bates.
She said it is important for loan officers to become familiar with the local Rotary Club or a chamber of commerce in order to make connections.
But the key to getting business in the door is to “make yourself available” and “adjust to the market you are in,” said Bates.
Caso said 40 percent of Homevest’s business is generated through Realtor-referred contacts.
“To survive, to thrive, you need a networking base,” said Caso.
Originator Times suggests mortgage companies also market through consumers’ employers.
“Surveys show the majority of employees who are offered benefits through their company will at least inquire about those services before they contact another provider,” according to Originator Times.
Koss said those fluctuating rate changes remind him of the 1990s.
“This is 1994 revisited,” said Koss.
The difference between now and 10 years ago, he added, is that a plethora of local banks, such as Andover Savings Bank, First Essex Bank and BayBank, no longer exist, therefore opening things up for companies like Countrywide to get in on the adjustable rate market.
And when the refinancing boom ends, some mortgage companies drop out of sight. Some companies close their doors and mortgage association memberships drop off, said Bates, who sits on the Massachusetts Mortgage Bankers Association’s board of directors.
James F. Flynn, president of Hopkinton-based Marathon Mortgage and president of the Massachusetts Mortgage Association, said companies that close will most likely try to hold out until the end of the year, but he said there will be an exodus.
“The slowdown in the refinance area will pull people out of the industry,” said Flynn.
Caso has noticed that a lot of small mortgage companies popped up in the past two years when the refi wave started.
“The last two years were Disneyland,” said Caso, referring to how easy it was for mortgage companies to get business.
The past two years were not indicative of a real market, he said.
Ginches said those who do not have a referral service will be the ones likely to close their business.
Bates said while it is easy to lose touch with Realtors and other contacts during a refi boom, those relationships are the ones that can keep you in business.
“If you look at this as your profession,” said Bates, “you must keep relationships up.”
For the companies that are looking to get out, Countrywide may be the one that buys them out.
“There are a lot of companies for sale right now that are floating trial balloons,” said Koss.
According to Koss, Countrywide is looking to expand its business and buy out other companies. He said people are looking for strategic partners in the mortgage industry.
Caso expects consolidation in the industry, especially in the upcoming summer months when business slows down. He said July and August will be a crossroads for a lot of people in the mortgage business.
Koss predicts there could be a dip in rates in the fall, depending on the presidential election or international events.
“There’s a shot we could get a mini-boom,” said Koss.
Ultimately, most of the lenders agree that no matter the interest rate, someone will always be looking to refinance or purchase a home.
Jennifer Jope may be reached at jjope@thewarrengroup.com.
