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Mortgage lenders adjust as rates rise, refinancing stagnates

Mortgage lenders adjust as rates rise, refinancing stagnates

Rising interest rates, coupled with the ongoing inventory shortage in the real estate market, has had a varied impact on operations for mortgage lenders.

Mortgage companies and banks that targeted the booming refinance craze of the previous year have been forced to lay off or reassign employees. Some banks that contracted with outside agencies to help meet consumer mortgage demand have severed ties and are now processing the work internally.

But lenders that maintained a focus on home purchases and the overall customer experience say not too much has changed internally.

Mike Pulver

“We’re on track to do as much business this year as we did last year because we weren’t reliant on refinance business,” said Mike Pulver, senior vice president of residential lending for Genesee Regional Bank, the No. 2 purchase-money mortgage lender in the market.

The Mortgage Bankers Association (MBA) is predicting a drop of as much as 40 percent in mortgage originations for this year, and a significant rise in interest rates has made refinancing far less attractive.

Mortgage applications as well as The Refinance Index both fell fell to a 22-year lows in July, according to the MBA. Refinance mortgages dropped 83 percent compared to the previous year while new purchases were down 18 percent.

“Increased economic uncertainty and prevalent affordability challenges are dissuading households from entering the market, leading to declining purchase activity that is close to lows last seen at the onset of the pandemic,” Joel Kan, MBA’s associate vice president of economic and industry forecasting said in a news release.

That’s why nationally prominent banks such as JP Morgan Chase and Wells Fargo have, or soon will, implement significant layoffs in their mortgage departments.

The impact has been even more dire for some independent mortgage brokers. The Real Deal reported loanDepot will trim 4,800 workers from the payroll. Mr. Cooper was preparing to cut 5 percent of the workforce (reportedly around 420).

“The larger, national lenders that staffed up substantially to manage the refinance business are being affected,” Pulver said. “We did not see a surge in refinance lending. Most of our business is purchase-money loans.

“We do refinance business; we welcome it, we want to do it for existing clients. But we focus on relationships and our purchase-money loans because when the refinance booms end, they end abruptly.”

ESL Federal Credit Union, the area’s No. 1 mortgage lender, has always had a similar approach to doing business.

Jim Miller

“Our purpose is to help our community thrive and prosper,” said Jim Miller, vice president and director of mortgage lending at ESL. “The Rochester housing market is still very competitive, and people still need our help.”

That assistance, Miller said, comes in the form of education and guidance, from pre-mortgage qualification right through closing.

“When somebody’s trying to guy a house and has put in 20 offers and none have been accepted, how can we them get to the point where one of those offers is accepted?” he said. “The education, support and advice doesn’t stop at the application.”

ESL did $434 million in mortgage dollars in 2021 and has $1.3 billion worth of mortgages in its servicing portfolio. But as the refi frenzy has quieted and with inventory remaining low, there has been a shifting of some duties within the 50-member mortgage team.

That may mean more resources allocated for new-purchase mortgages, customer guidance and ensuring support for local real estate agents, Miller said.

Five Star Bank (parent company Financial Institutions, Inc.) saw a 2.6 percent decline in total residential mortgage loan dollars in the recently closed second quarter compared to the same period in 2021.

But in the earnings call with investors, CEO Martin Birmingham said Five Star will continue to pursue ways to remain front-and-center as the market cools.

“First mortgage volumes continue to trend lower, but we have seen increases in home equity volumes,” Birmingham told investors. “Like much of the nation, residential lending opportunities in our markets have been impacted by higher interest rates, inflationary pressures, low housing stock, and changes in buyer appetite.

“As we manage through these challenges, we continue to focus on driving operational efficiencies and recruiting top tier talent to support this key line of business and maximize opportunities for growth moving forward.”

Fairway Mortgage of Pittsford isn’t too far off 2021 sales numbers. The firm saw about a 6 percent dip in lending for the first six months of 2022, according to area manager Robb Everhart. Fairway hasn’t been hit has hard as other independent lenders because it, too, has a focus on purchase mortgages.

“We weren’t really chasing the refinance,” Everhart said.

But higher interest rates haven’t just impacted refinancing. Lenders that sell mortgages on the secondary market, rather than service them themselves for the duration of the loan, face another issue: margin compression. A mortgage with a 6 percent interest rate isn’t attractive on the secondary market.

“Those servicing companies don’t want to take on 6 percent today,” Everhart said. “The value is the long-term money returning to them. Their fear is that whenever we do get into a recession and the Fed lowers rates, then they’re going to be losing money.”

And while listings have ticked up slowly in recent weeks, buyers are dealing with the impact of higher interest rates. The payment on a $200,000 mortgage with 5 percent down was $893 in January, Everhart said. In mid-July, it rose to $1,139.

For some homeowners, there also is a need for refinancing.

“While the perception is that refinancing has dried up, there are still life events that go on, such as divorce,” Miller said.

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