Technology, Tenacity Play Heavily in 2002Michael Simon2002, refinance boom, technology
When the 15-, and 30-year mortgage rates reached a record-low on
Nov. 8, following the Federal Reserve's ninth rate cut of the year,
mortgage professionals around the industry suddenly found
themselves in the midst of another refinance boom. Just prior, the
economy had officially been declared recessive, prompting the
unprecedented plummet. However, nearly paralleling the explosive
Afghanistan crisis, mortgage rates have since been on a veritable
seesaw, causing brokers to ponder the future of both their country
and industry, and wonder how 2002 is going to shape up.
Consequently, many brokers should start saving some of the more
than $1.5 trillion in total mortgages closed in 2001, while
preparing for a significant downturn in originations. Even the
smallest of shops should weigh the strength of the Internet with
some heavy enthusiasm in 2002, as technology will play a more
significant role in the coming decade.
There will certainly be a decrease of refis in 2002. After this
year's record-setting marks and historic rates, it is unlikely that
rates will fall much lower, and less likely that there will be
another boom, even with the off-chance of further Fed rate cuts. A
rise in home purchases could help offset the refi revenue loss, but
that depends largely on an already precarious economy. However,
assuming no other major incidents like Sept. 11, consensus
forecasts are generally for a strong economic rebound in 2002,
especially in the third and fourth quarters.
However, even with a stimulated economy, brokers will
potentially see a drop in both their collective and individual
market shares.
"Financial markets remain quite volatile at present, and this
volatility will continue to influence mortgage rates through the
end of the year," says Robert Van Order, chief economist for
Freddie Mac.
With the comfortable blanket of recent refis warming the
industry, many brokers could be in for a cold rush, once the refis
level off and home sales begin to rise.
After four weeks of steady rate hikes, 30-year fixed rate
mortgages finally dipped back below seven percent for the week
ending Dec. 7, up sharply from the six-and-a-half percent posted on
Nov. 9. What this boils down to is decreasing refis and a probable
2002 Mortgage Broker market share loss, a share which currently
stands at approximately 60 percent of the overall market.
This is due, in part, to a bolstering economy. As it continues
to strengthen, rates will rise, refinances will decrease and
housing sales will increase. But no matter how strong the real
estate industry becomes, it is improbable that the broker share
during a home buying boom will be as strong as that of a refi
boom.
"Brokers are a bit like an accordion. In periods of increased
demand, such as during refinancing, the number of Mortgage Brokers
providing the services expands, due to retail shop overflow," says
Tom LaMalfa of Wholesale Access, a company specializing in
proprietary research on the mortgage industry. "However, when the
aggregate demand for mortgage services decreases, so does the
broker market share."
Moreover, with the recent anthrax scare, more consumers are
poised to make the jump to the Internet; if brokers do not enhance
their Web presence, they will lose a large percentage of online
orders.
While consumers will always utilize brokers for the personal
interaction that they provide, the contract itself may become
largely automated, perhaps sooner than later.
In fact, according to Meridien Research, by 2005, online home
mortgage closings will account for somewhere between 10 and 15
percent of the total share, as compared with approximately two
percent today. In a trillion-dollar-plus origination market, and
considering the percentage of referrals and refinancing, that
equals a share too large to ignore.
"Technology is here to stay. It will be the companies that
combine the Internet with their in-house personal lines operations
that will survive once the refis drop," says Mr. LaMalfa.
The housing market will undoubtedly remain strong throughout the
coming years, but brokers will need to expand beyond traditional
paper-and-pencil loans to take full advantage.
Right now, there seems to be enough applications to go around.
In 2002, that may no longer be the case, and it remains to be seen
how this will affect the broker's stake. As Franklin D. Raines, CEO
of Fannie Mae vouches, "Our nation has proved its resilience time
and time again. That will not change. Nor will the fact that the
desire to own a home is a powerful driver, one that lies at the
heart of the American dream--yesterday, today and tomorrow."
With some strong connections and a DSL broadband connection,
Mortgage Brokers can ensure a considerable piece of that dream for
some years to come.
