Mortgage applications are up, and refinancing is in.
Weekly reports show that so far in February, the Market Composite Index – a measure of mortgage loan application volume – has been beating the weekly numbers from February 2006. The data comes from the Washington, D.C.-based Mortgage Bankers Association, which also reports that nearly half – 46.1 percent – of the applications are for refinancing.
“Nationwide, there’s trillions of dollars coming due in three- and five-year variables,” said Peter Spalthoff, executive director of the Connecticut Society of Mortgage Brokers.
Spalthoff said as the initial, low-interest period on adjustable-rate mortgages ends, consumers are saying, “Now I want to make sure I’ve got a monthly payment I can live with for the next 15 to 20 years.”
Spalthoff added that he feels the current trend marks a shift in how refinancing is being used. Unlike previous years when homeowners would refinance for a better rate to secure cash for remodeling work or their children’s tuition, for example, now the focus is on restructuring their ARMs, he said.
“People aren’t refinancing for the things they did in days gone by,” Spalthoff noted.
The length of the refinance push remains to be seen. Spalthoff said he expects it will dwindle sometime in the spring.
‘Low-Maintenance’
Hoping to catch some of that market – as well as other mortgage opportunities – The Bank of Southern Connecticut is partnering with Capital Mortgage Assoc. to begin originating residential mortgages.
The New Haven-based bank, a wholly owned subsidiary of Southern Connecticut Bancorp, specializes in business loans, said President and Chief Operating Officer Michael Ciaburri.
“We felt that we needed to augment our business on the residential and consumer side,” he said.
The bank will take applications and forward them to North Haven-based Capital Mortgage, he said. There are no plans to maintain a portfolio of residential mortgages, he added, so the originated loans will be sold to third parties.
“It’s very low-maintenance and high-profit,” Ciaburri said. “We’re not lending the money. All we’re doing is brokering the deal.”
Noting that “it’s a volume business,” Ciaburri said that he would like to strive for brokering 10 to 15 closings a month.
Up the road at McCue Mortgage in New Britain, the volume of applications is following the national trend reported by the Mortgage Bankers Association.
“We’re seeing more applications than we did last year,” said Kim Neilson, senior vice president. “We’ve hired more loan officers, so that does have an impact.”
The bank, which primarily concentrates on purchase loans and mortgages for first-time buyers, has added four new loan officers, she said.
Though the application volume is up from last year, Neilson said the biggest difference from 2006 is in the subprime market.
“I knew 2007 was going to be a year where things would tighten up,” she said.
The subprime market has wrought havoc for some firms, including Middletown-based Mortgage Lenders Network USA, which has filed for Chapter 11 bankruptcy. The business, which was shut down by the state Department of Banking before filing for bankruptcy, was in the process of building a 305,000-square-foot facility in Wallingford that was to serve as the company’s headquarters.
Some other subprime lenders that have run into trouble recently include London-based HSBC Holdings and Irvine, Calif.-based New Century Financial. Both companies have admitted that they severely underestimated the number of subprime loans they would have to buy back from the secondary market due to early defaults.
As a consequence, Wall Street investors are now being more cautious.
“Wall Street investors are setting stricter criteria,” said Neilson, noting that subprime lending represents only a “small percentage” of business at McCue Mortgage.
Outside of the single-family markets, the mortgage industry is coming into 2007 with a full head of steam from the commercial and multifamily mortgage segments, according to MBA’s research.
Commercial and multifamily originations in the fourth quarter of 2006 surpassed the same quarter of 2005 by 3 percent, and MBA projects 2006’s total number of originations will surpass the total from 2005.
“The increase in commercial/multifamily lending activity during the fourth quarter was driven by increases in originations for hotel properties, offices, industrial and multifamily,” states the MBA report. “When compared to the fourth quarter of 2005, the overall increase included a 20 percent increase in loans for hotel properties, an 8 percent increase in loans for office properties, a 3 percent increase in loans for industrial properties and a 2 percent increase in loans for multifamily. Lending for retail properties saw a 5 percent decrease and health care properties saw a decrease of 7 percent.”
“Based on these quarterly figures, it appears 2006 annual originations will exceed the record volumes seen in 2005,” continues the report. “Increases are expected in every major property type and across most investor groups.”
Do signs such as strength in the commercial sector and an increase in application volume bode well for the 2007 mortgage and real estate markets? It may be too early to tell.
“It’s hard to make those kinds of projections,” Neilson noted.
Spalthoff predicted that 2007 will finish “flat at worst.”
Even though the residential applications in 2006 were down 10 percent to 15 percent from 2005, he said, “look at the highs we were coming from.”
