The past four years will likely be remembered as a gilded age for anyone in real estate, especially mortgage bankers. But with interest rates...
ORLANDO, Fla. — The past four years will likely be remembered as a gilded age for anyone in real estate, especially mortgage bankers. But with interest rates rising, the industry is preparing for a slowdown that may prompt some lenders to merge with their competitors.
Consumers may be winners from the mortgage banking industry’s scramble for customers in the months ahead of this anticipated consolidation.
Homebuyers are already seeing lenders cutting loan fees, and some lenders are willing to offer lower mortgage rates even if it takes away from their profits.
Last week, the chief executive officer of Washington Mutual, Kerry Killinger, also said that the mortgage industry may be headed for a shake-out, and he ticked off measures WaMu has taken to reduce its exposure, including selling a larger portion of its mortgages than in the past.
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“Companies are losing money to keep market share,” said Douglas Duncan, chief economist at the Mortgage Bankers Association (MBA). “The consumer is being subsidized because the competition is so fierce. For the short run, the consumer is getting a better deal.”
Once that period of consolidation and mergers is over, consumers are unlikely to get such a good deal. There won’t be price gouging after a merger wave, but fees probably won’t be slashed as much as they are today, Duncan said.
At a mortgage-banking-industry convention in Orlando this week, many executives were clearly worried, with rising interest rates eating away at demand from consumers looking to buy homes or refinance existing mortgages.
Some said companies will need to make themselves leaner by cutting staff — or find merger partners. More than one executive voiced concerns about shrinking profit margins.
Lenders expect to process $2.26 trillion of home loans next year, down from this year’s expected $2.78 trillion and sharply lower than 2003’s record of nearly $4 trillion worth of loans processed.
“As rates move up there’ll be more consolidation, mergers and people leaving the business,” said Ray Morris, a director of business development at GMAC Mortgage’s subservicing business. “We’re a scale business, and companies that do large scale business survive.”
More than half the loans made directly to consumers are arranged by loan brokers with some 8,500 lending companies or mortgage banks. The thinning in the industry’s ranks is expected in all levels, particularly brokers who have been attracted to the industry by its rapid growth.
Bill Beckmann, president and chief operating officer at CitiMortgage, a unit of Citigroup, predicted that “industrywide, if as predicted volume goes down … there will be fewer people next year than this year.” He said staff cuts and mergers would likely happen among midsize mortgage companies — lenders that process $10 billion or less in mortgage loans each year.
One company that fits the midsize category is Gateway Funding, a Horsham, Pa.-based mortgage lender founded by Regina Lowrie in 1994 and which underwrites about $3 billion to $4 billion of mortgage debt each year.
Lowrie’s firm competes with large banks that can borrow money less expensively. Gateway’s money for home loans, provided by so-called warehouse lenders, is a little more expensive after the Fed’s latest series of rate increases.
“It’s a challenge,” she said, adding that this has her wondering “how big can you get as an independent that is not bank-owned or publicly traded?”
Lowrie is considering whether to form a bank to lower the capital, selling the company or taking it public.
“I’m looking at all the options,” said Lowrie, who was elected the new chairman of the MBA at this week’s convention. “Right now, Gateway is at a point where we need to make a decision: Do we stay the size we are? If we are going to grow, how are we going to raise more capital?
Killinger comment from Seattle Times business reporter