Loan market sees shift away from refis | Inside Real Estate News

Highlights:

• Resale loans replacing refinances.
• Fewer homeowners need to refinance.
• Rising rates make it less likely they will refinance.

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There is a sea change occurring in lending circles in the Denver-area and across the U.S., as banks and mortgage bankers increasingly shift to making loans for home purchases, as opposed to refinancing existing loans.

Part of it is due to a recent rise in mortgage rates, which while still unbelievably low by historical standards, are off their record lows.

Rates rising almost a full percentage point in recent weeks to more than 4 percent has hurt the ability of a consumer to buy a home a bit, said Peter Lansing, president of Universal Lending.

For example, a person who could have qualified for a $200,000 mortgage when rates were at an all-time low, could now quality for a $191,400 loan, he said.

?So there is maybe a $8,600 difference in housing cost,? Lansing said.

Lansing recently attended the Mortgage Banker Association?s Chairman?s Conference ?for top lenders across the country, and he said most of the speakers from Washington, D.C. expect rates to rise to about 4.5 percent ?pretty much through 2014.?

Part of the expected increase is at some point the government is expected to slow or stop its monthly bond buying, which has kept interest rates low, as unemployment falls and the economy improves.

?The real impact, though, has to do with the refinance market,? Lansing said. ?The refinance market is slowing.?

It is not just because interest rates have been rising, either.

Rates fell so low that some homeowners have already refinanced two or three times and have no need to do so again, he said.

?There is the bell curve,? Lansing said. ?A lot of people who could qualify to refinance already have taken advantage of these really low interest rates. You can?t refinance people indefinitely. We?re kind of running out of people to refinance.?

A recent report of the top 50 lenders in the Denver metro area by Land Title Guarantee Co., found that some lenders in April, the most recent numbers available, were still heavily weighted toward refinancing.

Wells Fargo Bank, the biggest lender in the metro area, made 1,574 mortgage loan almost $1.2 billion in April. Of those 218, or 13.8 percent, were for resale purchases, while 1,069, or 67.9 percent, were for refinances. A handful of loans were made for new homes and land.

Other big lenders also were heavily weighted toward refinancing.

At J.P. Morgan Chase Bank, only 10.1 percent of the loans were for reales; at Bank of America, 6.3 percent; US Bank, 6.6 percent; and Quicken Loan, 7.1 percent.

By contrast, at Universal Lending, 65.7 percent of its loans were for resale purchases. Other large, locally owned mortgage bankers showed similar trends. At Megastar Financial Corp., 51 percent of its loans were for resale purchases and at Pinnacle Mortgage Group, 80 percent of its loans were for resales.

Part of the reason that Wells Fargo was making so many refinances as compared to purchases is because of its size and the services it offers, said Tony Julianelle, an area sales manager for Wells Fargo.

?When you look at the top 50 report from Land Title, there are very few national who service their own loans,? Julianelle said.

?We do, so we always run a higher number of refinances than the market overall.?

Because one out of four households in the metro area banks with Wells Fargo, a lot of consumers will turn to it when they are considering refinancing, he said.

But he agreed that he expects that purchases will increase and refinance activity will drop off.

With rising mortgage rates, he said advised consumers to take a closer look at adjustable rate mortgages.

?During the downturn, ARMS got a really bad rap, but that was primarily because of exotic products like option ARMS, which Wells Fargo never offered,? Julianelle said.

?Today, you can get really great rates from 7-year and 10-year ARMs,? he said. ?These are really great choices for people who only plan to stay in their home for five to seven years.?

Brian Rindels, owner of Pinnacle Mortgage Group, said that last year, overall, probably 60 percent of his business was for refinances and 40 percent for purchases.

?I think we probably will see the reverse this year,? he said.

He said some companies that have been heavily focused on the refinance market, may have a problem making the switch to purchases and be forced to lay people off as the refinance business slows.

?I think the companies that are focusing more on the purchase side this year and next year will be fine,? Rindels said.

?There absolutely has been a shift,? to purchases, said Greg Hamilton, chief financial officer at the Colorado Credit Union.

?In 2012, we probably had 85 percent refinances and 15 percent purchases, and now we?re probably 60 percent refinances and 40 percent purchases,? Hamilton said.

?I think by the end of the year, we probably will be close to 50-50.?

Despite the shift toward purchases, Lansing isn?t prepared to say that the refi-boom has ended.

?Every time I say that, I turn out to be wrong,? he quipped.

Have a story idea or real estate tip? Contact John Rebchook at? JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.

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Source: http://insiderealestatenews.com/2013/06/loan-market-moves-to-purchases-from-refis/

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