Brokers are looking at the refi business as gravy that will turn 2001 from a good year into a great one. Many view the current boom as the reward for being a long-time originator--sticking with the business during good and bad times.
Wholesalers, meanwhile, are struggling with ways to prevent rapid refis from the same borrower.
What a difference a few months make.
A new refinance wave, triggered by the dip in interest rates, has loan originators scrambling to meet customer demand. Mortgage brokers, especially, are taking full advantage of the drop in rates and are busier than ever.
It's a far cry from last summer, when origination levels were off and many brokerage companies had to rein in expenses. "There was a great deal of tumult for brokers in the second half of 1999 and throughout 2000," says Tom LaMalfa, managing director of Wholesale Access, Shaker Heights, Ohio. Many brokers saw their revenues slow in response to lower production levels and were forced to lay people off and cut back on overtime, according to LaMalfa. "It's painful when it comes as abruptly as it did. In 1998 and the first part of 1999, brokers were adding people. Then they had to do a 180-degree turn when the market changed," LaMalfa says.
Now today's market has mortgage originators doing another about-face to keep up with the heavy demand for refinances. How are successful brokers and loan originators handling the rapid fluctuations in the mortgage market? It seems those who have been in the business for a while and learned to prosper in it share a common strategy during a refinance wave: They manage to maintain their purchase business along with its associated relationships and view the refinances as gravy.
Most originators interviewed for this article said they have changed their strategies and approach to the market very little despite the drop in rates and the refinance boom. Successful originators keep an emphasis on excellent customer service and maintaining contact with former customers and Realtor or other referral sources, even in a refinance market. Keeping up with refinance demand is a formidable task in itself.
In fact, many originators feel the biggest challenge strategically right now is determining how to take advantage of all the refinance opportunities. "Believe me, I'm so busy right now I can't even get to everybody," says Mike McGee, a mortgage broker with Winchester-McGee Financial in Sacramento, California.
"A lot depends on how hard you want to work and how you want to spend your time. Some brokers are working seven days a week, 14 hours a day," adds Al Pfannkuch, a broker with Priority Mortgage Group, Inc., Stratford, Connecticut.
Wholesale Access is very bullish on both overall origination activity and the share that mortgage brokers will take this year. The company is predicting refinances this year will be $500 billion, with the purchase market strong at about $900 billion.
"At these interest rates, or even at levels that are potentially better, there is going to be a groundswell of refinances," LaMalfa says. "There's more than a trillion dollars' worth of mortgages that have coupons above 8 percent, so if you talk about target markets out there, it couldn't be any plainer."
LaMalfa predicts brokers will take the majority of the refinance business this year. In 1998, mortgage brokers took 70 percent of the refinance market share, and 46 percent in 1999, according to market research done by Wholesale Access.
"Essentially the refinances went away and took the brokers with them," LaMalfa says. He predicts that brokers will account for 50 percent of overall mortgage activity in 2001 and an even larger percentage of refinance volume.
LaMalfa also predicts there will be a big increase in the total number of brokerage companies. Wholesale Access estimates there are between 20,000 and 25,000 brokerages operating today, and that number could increase by up to 10,000 this year. "There's a lot of small companies that can set up very quickly because there are few barriers to entry in the business," LaMalfa says. "There's that group that has been out there for 10 to 20 years, but the rest of it is a little bit like an accordion, and depending on the supply-demand balance in the mortgage market, the number increases as the demand for mortgages increases. So new companies will pop up."
Mortgage Banking spoke to a number of top brokers and loan officers who have been in the mortgage business for a while to see what strategies they are using to deal with the current market, and to find out how they adapt to the cyclical fluctuations in the demand for mortgages.
A good time to court Realtors
John Bianchi, an assistant vice president and San Diego County retail manager and top originator for North American Mortgage, says he will refinance his existing customers, but will not spend his time marketing new refinances. Instead, he believes the current market can be a strategic time to solidify Realtor relationships as well as create new contacts. That's because Realtors are often abandoned by lenders who are too busy working refinances, according to Bianchi.
"All the refi business will be extra business this year. I'm not going to let it go to someone else," Bianchi says. "But I'm not going to do the mailings and phone calls to the mass population just so I can get refis."
In fact, Bianchi doesn't do refinance loans personally, but has two originators in his office who work his database and do the refinance loans for past clients. "That way I don't lose any focus on the purchase business. I probably hit the Realtor business even harder than I did before. Most lenders who were calling on Realtors have now stopped calling because they can do refis. This is my chance to go out in the field and take [Realtors] away from loan officers who are not paying attention because they're working on their refis," Bianchi says.
Bianchi's origination volume in 2000 was just more than $93 million, up from $67 million in 1999--making him the No. 1 originator for North American nationwide, according to the company. He estimates that 5 percent of his originations last year were refinances. Bianchi predicts his production will surpass $100 million this year, with 20 percent coming from refinances. "My goal is to maintain the same level of purchase business, and the refinances will bring it over $100 million," he says.
As part of a new marketing strategy to real estate agents, Bianchi recently began offering to send refinance information to Realtors' clients. "If Realtors want to do a mailer, I'll work it for them. I suggest sending a letter to their clients notifying them that the [conforming Fannie Mae/Freddie Mac] loan limit has changed and that rates are down," Bianchi says. "We offer to do no-cost loans and also offer to throw in airline miles, and we mention who their Realtor was." Real estate agents are often grateful for the opportunity to put their name in front of clients, according to Bianchi.
Purchase business remains strong in Southern California, and housing prices continue to rise, says Bianchi. "I closed over $13 million in December in purchases, and January is going to be another great month. There's a real shortage of housing in San Diego and there are plenty of buyers. I think the lower rates are going to help the market, because a lot of people who were hesitant to sell their homes last year can move to a great fixed rate if they repurchase again. It's really going to boost the market."
Brokers have an edge
Neill Fendley, a mortgage broker in Phoenix, believes small mortgage brokerage firms have an edge over large mortgage companies in the current frenetic market. "Brokers offer personal contact to customers--that hands-on approach--as opposed to a large mortgage banker, where they're just another name and number on a loan," says Fendley, president of Pathfinder Mortgage, Phoenix, and the current president of the National Association of Mortgage Brokers (NAMB).
"It's a very personal form of service, and I think that's what makes...