Lower Mortgage Rates Revive Sector, for Now
By MATHEW PADILLA
Mortgage interest rates have sunk to their lowest level since the go-go days of summer. But it’s far from d & #233;j & #341; vu for a sector that played a driving role in Orange County’s economy last year.
Lenders and loan originators said they saw a surge in applications last month as interest rates hit the lowest point since June. While the upsurge is welcome, it’s not enough to rekindle the rapid hiring and real estate growth mortgage companies saw last year.
The 10-year Treasury bond,a pacesetter for mortgage rates,dipped below 4% last month for the first time since October but then was back up above 4% by the end of January.
“This is all very volatile,” said Jeff Lisinicchia, chief financial officer for Irvine-based Greenlight Financial Services Inc.
Even so, Greenlight used January’s rate dip to start running television and radio spots again, according to Lisinicchia. Greenlight got 30% more calls than usual last month, he said.
“We jumped on the lowering” of mortgage rates, Lisinicchia said.
Home loan applications, mostly to refinance existing mortgages, shot up by as much as 20% in late January, according to Michael McCarthy, general manager of Costa Mesa-based Ditech.com, part of GMAC Mortgage Corp.
The uptick is bitter news for now defunct Instafi.com, which specialized in refinancing from its Irvine headquarters. The company closed its doors in December after being squeezed for several months by higher mortgage rates.
If Instafi.com had held on just one more month, it might have benefited from January’s lower rates. Greenlight took over the processing of loans started with Instafi.com.
Ditech.com’s McCarthy said he is optimistic the industry could see gains beyond January. With the downturn in rates, “there is a lag effect for consumers to find that out,” he said.
The average rate on a 30-year, fixed-rate home was 5.68% last week, according to Freddie Mac’s weekly survey. That was down from 5.87% earlier in the month and the second lowest level since July.
The 30-year hit 5.21% in June, the lowest level in recent memory.
Lackluster December job growth figures likely spurred January’s lower rates, industry sources said.
The reversal was enough to prompt the Washington, D.C.-based Mortgage Bankers Association to up its projection for the industry this year. The trade group previously said the mortgage industry nationally would fund $1.6 trillion in loans this year. It now pegs the total at $2 trillion. Last year, $3.8 trillion in loans were made.
Still, no one seems to think mortgage rates will stay low for long. The increasing federal debt, the weak dollar, inflation concerns with the rebounding economy and other factors have sources predicting rates will rise a point or two this year, albeit at a slow, steady pace.
“History proves that when the economy heats up inflation is not far behind,” said Rich Gale, a director of the Sacramento-based California Mortgage Bankers Association.
The threat of inflation could push the Federal Reserve Bank to raise its federal funds rate up from its current 1%, according to Gale.
“I would say by the third quarter, we should expect to see higher rates,” he said.
As such, mortgage companies aren’t betting the farm on a sustained rebound.
Ditech.com is set to keep its payroll at about 1,000 workers, down nearly 40% from the 1,600 or so people working for the company during the summer peak, according to McCarthy.
Greenlight also isn’t hiring, holding steady at nearly 300 workers, down about 50% from the summer high of 500 to 600 workers, Lisinicchia said.
In the past 18 months, mortgage companies leased about 2 million square feet of office space in OC and hired hundreds of people, many of whom since have been laid off or left as commissions dwindled.
Ditech.com and Greenlight do most of their work via the phone and Internet, as do several other OC-based players such as Costa Mesa-based Secured Funding Corp. These companies fund loans initially and then place them with big banks or package them in pools to be sold as securities to Wall Street investors.
After the market turned in June, Ditech.com, Greenlight and others turned to adjustable-rate loans and second mortgages, which appeal to people refurbishing their homes, paying off credit card debt or buying a vehicle.
OC’s Web-based lenders also are trying to grab as much of the home buying market as they can. But with new homes leading sales locally, the finance arms of homebuilders such as Lennar Corp. and Standard Pacific Corp. grab many of those mortgages.
The tradeoff for mortgage companies is that second loans typically are smaller than refinanced mortgages. Those tend to be anywhere from $200,000 to $250,000, while second mortgages range from $30,000 to $60,000, according to industry sources.
Ditech.com is closing about $1 billion a month in loans lately, down from $3.1 billion in July, according to the company.
Mortgage companies face other challenges. Home prices, which have soared to unprecedented levels in OC and the rest of Southern California, could decline. And Wall Street’s rebound could turn investors away from mortgage-backed securities.
Web-based lenders, which basically are call centers, are at a disadvantage when rates rise and home purchase loans outpace refinancing, according to Gale of the California Mortgage Bankers Association.
More traditional lenders, including banks and thrifts, have better ties to realtors and homebuilders, which helps them land more new mortgages, he said.
