Mortgage Companies Face "Tremendously Difficult" Year As Housing Recovery Crumbles

The topic of the false recovery in the US housing market has seldom been far from these pages but it seems both the mainstream media and the actual businesses on the ground are seeing that extrapolating dead-cat-bounces and easy-money bubbles (once again) ends in tears. As WSJ reports, mortgage lending declined to the lowest level in 14 years in the first quarter as homeowners pulled back sharply from refinancing and house hunters showed little appetite for new loans, the latest sign of how rising interest rates have dented the housing recovery. The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course... and the marginal potential refinancer has hit their limit.


As The Wall Street Journal reports, lenders originated $235 billion in mortgage loans during the January-March quarter, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013, according to industry newsletter Inside Mortgage Finance.

The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course. The average 30-year fixed-rate mortgage stood at 4.5% last week, up from 3.6% last May, when interest rates shot up in reaction to the Federal Reserve's initial indication that it might reduce a bond-buying campaign that was, in part, designed to keep a lid on long-term rates like mortgages.

The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing.



The hope is fading fast...

The lending news could disappoint economists looking for a pickup in housing construction and new-home sales this year that could drive growth as other segments of the economy are showing signs of rebounding after a winter lull.




Softness in the housing market, if it deepens and undermines the broader economic outlook, could complicate the Fed's efforts to dial back easy-money policies designed to support the recovery. Applications for purchase mortgages last week ran nearly 18% below the level of a year ago, even as the average loan amount on new applications hit a record of $280,500, according to the Mortgage Bankers Association.


The numbers raise questions over whether wage and job growth is strong enough for American consumers to shift the housing rebound that began two years ago into second gear.


"Housing has become less of a drag, but I don't think it's going to be that engine," said Stan Humphries, chief economist at real-estate data company Zillow Inc.

No engine indeed...

While mortgage rates are still low by historical standards, they're less useful to traditional buyers because home prices have risen swiftly, offsetting any benefit that low rates provide to reduce housing costs. As a result, "housing is becoming a less effective transmission belt for the Fed" to boost the economy, Mr. Humphries said.




"The real question for 2014 and later is how low the refinance share is going to go," said Guy Cecala, publisher of Inside Mortgage Finance. When mortgage rates jumped nearly two percentage points in 1994, refinancing fell to 11% that June, from 63% the prior October.




"Margins and profitability will be tremendously difficult this year for mortgage companies," said Anthony Hsieh, chief executive of, a closely-held mortgage bank based in Foothill Ranch, Calif.

Now, the industry is poised for a shakeout that could flush out lenders that can't survive on smaller margins. "This change is much more structural and will be longer lasting," said David Stevens, chief executive of the Mortgage Bankers Association. "It's a classic supply-and-demand scenario. We have an excess supply of lenders and a lack of demand."