Even though refinancings are still making up more than three quarters of all new loan applications (according to the Mortgage Bankers Association), the purchase business steadily has been gaining ground.
Many industry experts have said a successful long-term sales strategy cannot be solely reliant on refinance business. Originators need to ramp up their B2B marketing efforts and start courting those referral sources. A continuation of
In this excerpt from the roundtable, editorial director Mark Fogarty and managing editor Brad Finkelstein spoke with Robert J. Angelucci, president and chief executive of Cardinal Financial Co., Warminster, Pa.; Michael DiSalvio, account manager, Genworth, and president of the Mortgage Bankers Association of New Jersey; W. Thomas Kelly, president, Investors Home Mortgage, Millburn, N.J.; E. Robert Levy, executive director of the Mortgage Bankers Association of New Jersey; Peter R. Norden, CEO, Real Estate Mortgage Network Inc., Edison, N.J.; William Raftery, chairman, Aurora Financial Group Inc., Marlton, N.J.; and Ralph Vitiello, CEO, Maverick Funding Corp., Parsippany, N.J.
FOGARTY: So you are seeing a renewal of purchase business, which over the years is what has kept the mortgage business going. Refis bounce up and down, but the purchase market is more level, at least until a few years ago. Is a more normal market coming back?
VITIELLO: I would say yes. I truly believe the market for purchases is coming back. We don’t believe there is going to be a bubble any time soon. Values had gone down to such low levels that the increases we are seeing are still nominal, versus what we saw in 2005.
FOGARTY: So it is more of a correction than an overheating?
VITIELLO: Yes
NORDEN: In the markets we’re in, we did a fair amount of purchase business last year. Of our total volume, we did $5 billion last year; over $3 billion was purchase. So we were pretty active on the purchase side. We really try to make sure we emphasize the purchase side in all of our channels. It is an extremely important aspect of our business model. I am not a big believer in building a business around refinances because they come and go. So we try to minimalize the amount of refinances we do. We try to make sure we never run over 50%. We do price incentives on purchases to get the purchase business. It is pretty aggressive; that is why we think going forward our purchase business will increase exponentially from where it was, even as we see that 40% of refis drop because we do think that is happening in the second half of the year. The first half is pretty strong on the refi side, which was a great thing for the industry because it carried everybody through January, February and March.
LEVY: I think that one of the issues that we have to be cognizant of, is how long are the low rates and the low prices are going to last. People are being to see more purchases and they are beginning to say, “You know what, I better do it now, otherwise I am going to be left out of the marketplace.” But on a long-haul basis we still have a big problem and that is jobs. With all the good that is coming out, you still have that holding us back because you don’t have any real light at the end of the tunnel in terms of the job market. You’ve got a very steady, but low growth and it is not enough. Until that’s resolved the last thing you have to worry about is a frothing of the market.
FINKELSTEIN: You talk about the macroeconomic situation. Last month, Radian and MGIC, two companies that are probably more exposed to macroeconomic trends than most in the mortgage business, were able to go to the marketplace, raise debt and equity capital and see their stock prices zoom up. Is that a good sign for the industry, are people thinking real estate has become safe again?
FOGARTY: Or is it that all stocks are at record highs?
LEVY: You think the market is rational, don’t you?
KELLY: The mortgages that are being originated today are being originated at a higher level of quality and as a result the Radians of the world are going to take loss losses.
FOGARTY: And the start-ups aren’t going to be burdened by the old horrible books of business. This would be a good time to start up an MI company with no legacy issues.
NORDEN: I think there is another issue relative to the MI companies. We are seeing a drop-off in FHA business due to a constant increase of the mortgage insurance premium and that has affected dramatically the investment community looking at the MI companies, knowing more and more business is going that route and away from the FHA. That is part of what is feeding part of the MI companies’ stock prices.
FOGARTY: The FHA has said we want to have less market share; we want to have less exposure to the taxpayers. It is public policy.
DISALVIO: (I work for) Genworth and I see it from the other side. The projections we have are based off of FHA decreasing because of the things they are doing now and everything they have done over the past year and a half.
ANGELUCCI: FHA will be adversely selected; they are shooting themselves in the foot.
RAFTERY: Add to that the Rural Development program is being restricted in terms of the areas which they allow (these loans to be originated for). And that is going to move further business to a conventional basis.
FINKELSTEIN: Acting FHFA director Ed DeMarco is calling for more guaranty fee increases for Fannie Mae and Freddie Mac. I’ve heard people say that will force business back to the FHA.
KELLY: I have a question, nobody’s answered this question. They keep raising up g-fees on Fannie, Freddie and on Ginnie Mae, trying to drive people into creating a securities market. So who are we going to be selling to?
NORDEN: Probably REITs.
FOGARTY: I was going to guess Fannie or Freddie.
KELLY: Will Fannie or Freddie still be around. I don’t think so or they will be called something else.
FOGARTY: They have been punting this around for so long, and now the GSEs are showing operating profits again. The temptation will be “Well, we’ll let them earn their way out of that $150 billion hole.”
DISALVIO: As long as you see the quality of the business coming in, you will see investors coming in too, whether it’s REITs or whoever.
KELLY: The question is who is large enough to step up to the plate and start issuing commitments? If it is not a REIT, it is going to be the big banks.
NORDEN: There are some fairly large hedge funds that really want to get in pretty heavily and are to willing to put $10 billion, $15 billion, $20 billion to work. So there are some options. If Fannie and Freddie went away, you are not going to be able to replace them and I think the government knows that.
KELLY: The next question is: what is the price and who is controlling the price in the marketplace and what does that do to qualifying people?
FOGARTY: It is not just a question of who is going to get in the market, but who is going to stay in the market. Your bank, your hedge fund, they don’t have an obligation to be in mortgages. They can like the business on Friday and get out on Monday. Fannie and Freddie are required to make a market and so are Ginnie and FHA.
LEVY: The big issue remains government guarantees. If somebody wants to get into the market and take the role of Fannie and Freddie, are they going to get some kind of government guarantee, even if is kind of the last resort guarantee.
KELLY: You might as well keep Fannie and Freddie if you do that Bob. You are going to give it to a hedge fund, you have a hedge fund already, Fannie and Freddie, and we don’t need another one.
NORDEN: There is one point relative to the question about guaranty fees continuing to increase and people going back to FHA. There is one big different between those two loans and the securitization process. With a guaranty fee increase, all you are doing is increasing the yield on a security and you’re adjusting the servicing component up or down accordingly. The consumer does not know that they are paying anything more, even though they are because it does get passed through. The FHA premium, the consumer is paying it directly. They’re paying upfront and they are paying over the life of the loan. So the consumer is much more resistant to that FHA fee. I don’t think that is going to be a real component that is going to drive people one way or the other.
