The housing industry has buttressed the U.S. economy this year. A record year is mortgage production is all but guaranteed. Wholesale and correspondent lending have fueled the production boom, with refi business swelling lenders' pipelines.
WOW! WHAT A YEAR THIS WILL HAVE BEEN -- 2001, A STRANGE ODYSSEY. For the nation, a tragic passage; for the economy, an anxious ride with more bumps likely to come. * For the mortgage industry, though, it has been a phenomenal production period. * Prior to Sept. 11 ( a new date to add to our national list of sad milestones), residential mortgage originations had been on pace for a record-smashing year: as much as $2 trillion in new business, according to some predictions. * The Mortgage Bankers Association of America's (MBA's) more precise estimate is $1.84 trillion, with refinancings accounting for 52 percent of that business. The MBA foresees originations dropping to $1.12 trillion in 2002, as refinancings "clam down" to just 25 percent of the total receipts. * All projections for 2001 depend, of course, on the final quarter keeping pace with the previous three. If it does, the industry will have put on a truly impressive display--especially considering the thoroughly lackluster general economy, now near, if not in, recession.
This year, manufacturing output was deep in recession (1 million jobs lost), the stock market undulated unpredictably (including a precipitous fall in September) and consumers were throat-deep in debt (owing $7.3 trillion--double the amount they carried into the 1990--1991 recession, according to the Federal Reserve).
Yet, through it all, housing has been a beacon in the darkening sky. Together with fearless consumer spending, construction and mortgage financing literally have kept the U.S. economy afloat. (Overall, the housing sector accounts for about 14 percent of the nation's economy. Real estate makes up about 40 percent of the assets of a typical American household, compared with 15 percent for stocks and bonds.)
"This will clearly be a banner year," says Tom LaMalfa, managing director of Wholesale Access, a Columbia, Maryland, research and consulting firm. At the current pace, LaMalfa says, he expects the industry to exceed levels attained in 1998, coming in at "just around $2 trillion"--half of that refinancings, he says.
The wholesale/retail split will be 65 percent to 35 percent, similar to 1998, predicts LaMalfa, who expects wholesale itself to represent nearly two-thirds of all purchase business.
The five originators calculated by Wholesale Access to lead the industry this year will be: Chase Manhattan Mortgage, with at least $85 billion in total production; Countrywide Home Loans Inc., Calabasas, California, with a projected $114 billion; Wells Fargo Home Mortgage, Des Moines, Iowa, with roughly $150 billion; Washington Mutual Inc., Seattle, with a projected $150 billion; Bank of America, Charlotte, North Carolina, with an estimated $70 billion; and ABN AMRO Mortgage Group Inc., Ann Arbor, Michigan, with $70 billion.
Conventional wisdom primarily credits lower interest rates for the boom, but LaMalfa says the story is "much more than that." He cites housing start levels, new-home sales and property price appreciation as underrated factors.
"Housing as an investment has come to the forefront, especially with the bubble popping in [the] equity markets," says LaMalfa, referring to capital flight from the stock market.
"A lot of money has been funneled in the last couple of years from equity markets into the housing market. People have cashed in their chips and bought larger homes," LaMalfa says. Debt consolidation, too, has been a spark, as heavily indebted America tries to lower its monthly installment outlays for past purchases.
LaMalfa says there is a "new sophistication" among consumers about financial matters, and their strong confidence in the housing market reflects a broad belief that it offers unparalleled stability--especially when compared with other investments.
You can add to that the fact that the industry has lost players, says William Newman, president of InterFirst Wholesale Mortgage Lending, Ann Arbor, Michigan.
Newman, who also serves as executive vice president of InterFirst's parent, ABN AMRO Mortgage Group, expects to see "more changes" in the correspondent sector, largely because "a lot of companies are not participating. We plan to expand," he says, because "it fits our return profile."
InterFirst's origination volume from correspondent lending was $6.3 billion through September of this year. Historically, this sector has been a "low-margin production opportunity," notes Newman, but, he says, "maybe with fewer participants the company might try to migrate there."
Production at InterFirst is expected to triple over last year, about half of that directly related to the favorable interest rate environment, the rest to technology and a beefed-up sales force, says Newman. The combination has enabled the firm to...