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Home Refinancings on the Slow Track

August 11, 2004|Annette Haddad | Times Staff Writer

Bob Armbruster was sitting with a group of California mortgage brokers Friday when word spread that July's jobs report was weaker than expected, sending interest rates lower.

"They broke out in applause," said Armbruster, president of the National Assn. of Mortgage Brokers. "Everyone was smiling."

The glee was easy to understand. Although home sales are on target to shatter records, refinancing activity -- the industry's bread and butter for the last three years -- is down significantly, and the dismal jobs report sparked hope that demand would rev up and extend the refi boom a little longer.

But on Tuesday, the Federal Reserve's move to raise short-term borrowing costs by a quarter of a percentage point, to 1.5%, appeared to have stifled the applause.

In fact, the volume of mortgage lending is expected to drop 35% to $2.5 trillion this year, as refinances slow to about 42% of all loans, down from 66% in 2003, according to a Mortgage Bankers Assn. forecast. That's because mortgage rates, which are tied to the yields on long-term Treasuries, have moved up to about 6% after hitting a 41-year low of 5.23% in June 2003.

Hermosa Beach loan officer George Kozel knows well the effects of a refi slowdown. A year ago, finding homeowners eager to refinance was like standing in a surging stream of spawning salmon.

"All you had to do," Kozel said, "was stick your hand out and grab the business."

Not now. These days, he said, "you have to work harder." As fewer customers with top-quality credit come knocking at his door, Kozel said he was trying to find new ways to help borrowers with less-than-perfect credit get loan approval.

He attended a mortgage brokers trade expo last weekend in Long Beach to get new leads on arranging so-called subprime loans. "When times get slow, a loan officer needs to look for a niche or he won't be working for long," he said.

The industry has been slowing down for a while. Last September, the number of employees in the segment of the finance industry that includes mortgage lending peaked at 2.81 million nationwide. It gradually declined until spring, when a temporary drop in mortgage rates touched off a mini-refinance boom, creating new jobs. By July, though, the total was down to 2.79 million.

Among the major companies shedding workers were: Washington Mutual, which has slashed more than 10,000 jobs in its mortgage finance operations in the last year; Bank of America, which laid off 500 in June; and First American Corp., the second-largest title insurer, which cited the refi slowdown for eliminating as many as 600 positions.

In California, the full effects of the lending slowdown haven't kicked in. Industry-related jobs have gained since September, peaking in June at 300,100. That's due in part to the red-hot housing market. The July employment report is due Friday.

As some companies trim staff, others see a chance to consolidate. Wells Fargo Home Mortgage announced two weeks ago that it was looking to double the number of commission-based sales workers to double its retail market share.

"It's a good opportunity to capture increased market share," Brad Blackwell, head of Western sales for Wells Fargo Home Mortgage, said.

No one in the business has any illusions that 2004 will be another record-smashing year like 2003, when mortgage rates hit 40-year lows and consumers borrowed nearly $4 trillion in mortgage loans.

But, despite the downturn in refinancings, 2004 is expected to be "a substantial year for those companies that have established businesses," said Anthony Hsieh, founder and chief executive of

Hsieh counts himself among them. The Orange County lender will move into a new, 162,000-square-foot office in Irvine this year and add 700 employees in the next 18 months, he said.

There's plenty of home-loan business to be done, Hsieh said, just not in refinancings, the recent downtick in mortgage rates notwithstanding. "It gives a trickle of hope, but it just prolongs the slow, eventual death."

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